16 Nov 2010

Consumers keeping tight grip on wallets

2:09 pm on 16 November 2010

New Zealand consumers remain wary of opening their wallets and are providing little reason for the Reserve Bank to lift interest rates, an economist says.

Official figures show total retail sales rose a seasonally adjusted 0.8% to $16.8 billion in the three months September.

Excluding fuel and car sales, core retail sales rose 0.9% and core volumes, which strip out price changes, rose by the same amount.

But UBS senior economist Robin Clements says most of the pick-up has been due to shoppers buying big ticket items ahead of the rise in GST in October.

Mr Clements says once that has been taken into consideration, consumer spending remains relatively week.

Households are focusing on reducing debt and there is little sign of a real pick-up in consumer spending, so it is appropriate for the Reserve Bank to keep rates on hold.

All regions showed robust growth in the September month, except for earthquake-stricken Canterbury, where sales rose a modest tenth of a percent.

Retailers feeling pinch

New Zealanders' thrift is hitting the services sector.

The BNZ-Business New Zealand Performance of Service Index fell 2.9 points to 52 in October. A reading above 50 indicates the sector is expanding.

BNZ says uncertain economic conditions and a sagging housing market have prompted households to save, which is good for the economy in the long-term, but making it tough for retailers.

The bank says the service sector could remain under pressure for some time and retailers should be wary of assuming the Christmas period will deliver the normal surge.