Like every year, consumer spend ramped up into the summer holidays. According to Kiwibank electronic card data, the average volume of transactions across the months of December and January was 2.3% more than the 2024 average. But the summer spike was far more muted compared to previous years. Compared to last (2023/24) summer, the total volume of spend contracted 1%.

Beneath the headline, spend patterns were mixed. The summer period was good for hospitality, while entertainment spend was flat and recreational spend underperformed. Demand for retail goods remains weak, at least in aggregate. Though some bright spots are emerging. Housing-related spend strengthened as summer chores took over.

Household balance sheets have come under significant pressure over the last few years. Financial conditions have been tight, with high consumer prices and expensive credit. Household disposable incomes have been squeezed. And as households have cut back on spending, it’s been discretionary items culled first.

2025 holds a different future. The outlook for spending this year is slowly improving. First, it’s about bringing balance sheets back to baseline. The change in interest rates and expected rise in house prices should improve the financial position of many households. Second, the cost-of-living crisis is coming to an end as we slowly enter a period of real income growth.

Bringing the buzz

Between Christmas and New Years, regional anniversaries and Waitangi Day, there was plenty to bring the buzz to the hospitality scene. And it was catch ups over coffee that dominated. There were fewer transactions made at restaurants & bars in January, down 2.4% from last year’s levels. But this was more than offset by the close to 3% rise in spend at cafés. Spend at fast food & takeaways also increased 3.4% over the summer. It is fish & chip season after all.

Prepping for holiday parties and potluck dinners drove up spending at grocery stores and butcheries. Kiwi also made the most of the seasonal weakness in produce prices. Compared to a year ago, the total dollars spent on fruit and vegetables rose just 1.6% over the summer while the volume of spend increased 7%. The value per transaction is down 4.8% compared to last summer.

Sticking with health, January also saw a typical lift in the volume of spend on fitness services & gym memberships, up 8.3%. After a few weeks of indulgence, it’s time to get started on those New Year’s resolutions.

Demand disappoints despite discounted durables

Shopping for Christmas presents and stocking fillers saw a seasonal rise in spend on retail goods in December, up 3.5%. Christmas Eve was especially busy with the usual last minute gift-buying. But as highlighted in previous reports, preferences among Kiwi are shifting, from material goods to experiences. Average retail spend in 2024 was down 0.7% compared to 2023.

Durable consumer goods have faced heavy price discounting. Despite this, demand for sport equipment has been weak. Spend rose into December, but was more muted than previous years. And compared to the 2023/24 summer, the volume of spend dropped 10% in part to blame for the 11.2% slide in total dollars spent.

Demand for housing-related goods improved into December. The volume of spend on home contents & furnishings was up 2.6% from a year prior while home electronics spend rose 6.2%. As usual, time off work means more time in the backyard testing out new toys. Spend on home building & renovations also picked up, increasing 0.9% over December and January compared to the 2023/24 summer.

Travel takes a hit

It seems that Kiwi also opted for local leisure and exploring their backyards over the summer. Compared to previous years, spend on recreation underperformed over the summer holidays. January saw a seasonal lift, but one of a smaller bounce. Despite cheaper flights, the volume of spend on flight bookings declined 4% compared to last year. Meanwhile hotel & accommodation spend posted an even larger fall, down 17%.

Outlook 2025: Tailwinds and headwinds

Household balance sheets have been stretched. Debt servicing costs had risen from historically low levels during the pandemic. For mortgaged households, debt repayments had taken bigger and bigger bites into disposable incomes. The correction in the housing market also lowered household net worth, weakening balance sheets and ultimately consumption. And it was predominately discretionary goods and services that were culled from the budget.

However, the tide is turning. There are several key tailwinds for consumer spending in 2025.

• Falling interest rates: The RBNZ has cut the cash rate 125bps from the 5.50% peak, and we expect another 125bp of cuts to come. Retail interest rates have a bit further to fall.
• Real income growth: For the last three years, the cost of everyday essentials outpaced household incomes. But now, pay rises are running above inflation. The cost-of-living crisis is coming to an end, slowly. It may not feel like it yet, but we are entering a period of real income growth.
• Rising house prices: We know over two-thirds of household wealth is equity in a home. The performance of the housing market is key to the recovery in consumer spend. With falling interest rates and changes to investor tax policies, we expect a decent recovery in house prices this year. And as equity builds, the wealth effect should kick in and kick consumption higher.

A grey cloud hovering in the horizon is the deteriorating labour market. Weak economic activity is now hitting the labour market. Hours worked are being slashed, and many businesses are downsizing. Employment growth is running backwards. And we expect further job loss-led increases in unemployment. Weakening job security risks a slower and more muted pick up in household spending this year.

The outlook for household spending is slowly improving. But we’re unlikely to see the same splurge as in previous years. Because repairing balance sheets is the near-term focus for many households. We’ve been in a per capita recession since December 2022. Net disposable incomes have fallen, with households funding the increase in spending through borrowing and drawing on existing funds. The change in interest rates and expected rise in house prices should improve the financial position of the household sector. But first, it’s about bringing balance sheets back to baseline.