Data Flash (New Zealand) NZ Retail Sales - Q3 2000
Key Points
The value of retail sales increased by 0.6% in the month of September (revised down from the advance estimate of 1.2%
mom). Excluding motor vehicles sales and services, sales rose by 1.1% mom. The latest result was driven by an increase
in the clothing and softgoods, food retailing and recreational goods storetypes. Appliance sales also increased by over
2% during the month.
Taking Q3 as a whole, the value of sales increased by 2.1% qoq relative to Q2. However, as we expected, increased prices
accounted for the bulk of the increase in nominal sales. The retail trade deflator rose 1.9% qoq (3.9% yoy).
As a result, the volume of retail sales grew by 0.2% qoq, compared to the median market expectation of 1.1% qoq. The
volume of sales was 1.7% higher than a year earlier. Excluding motor vehicle sales and services, retail sales volumes
rose by 1.3% qoq in Q3 and were up 3.1% on last year. The difference compared with the overall outcome reflects a 4.2%
qoq fall in sales of motor vehicles and a 0.6% qoq fall in sales of motor vehicle services (the latter probably
reflecting declining petrol volumes in response to higher prices).
On a storetype basis, the strongest percentage growth in volumes occurred in clothing and softgoods (+7.0% qoq),
appliance retailing (+5.8% qoq), and other stores (+4.6% qoq). Hardware sales fell 2.0% qoq.
On a regional basis, the strongest quarterly outcome was recorded in the Waikato Regional Council Area (+3.8% qoq in
nominal terms). The weakest sales growth occurred in the Wellington region (+0.7% qoq).
Commentary
The Q3 volume result was close to our own forecast of 0.4% qoq (we had anticipated that the movement in the retail trade
deflator would greatly exceed the CPI). Consequently, today's outcome has no significant implications for our
preliminary estimate of Q3 GDP growth, which remains +0.6% qoq, and which is driven by an expected contribution from net
exports, rather than consumption spending.
Retail sales volumes have held up comparatively well in the face of: dismal business and consumer sentiment; a sharp
weakening in housing market activity and, to a lesser extent, house prices; weak nominal wage growth; the negative
impact on disposable household incomes of higher petrol prices and the rise in tobacco taxes. In our view, this result
likely reflects a number of factors: If last week's HLFS result is to be given any weight, employment growth has
rebounded somewhat in Q3, thus raising total household income; In the last month of the quarter, in particular, retail
sales have been boosted to some extent as households have sought to beat well-publicised increases in prices (the near
6% rise in appliance sales, despite a flat housing market, supports this view, as does the resilience of durable goods
in general - see chart below).
Net growth in tourism has increased sharply - tourist arrivals in Q3 were 9.5% higher than a year earlier while the
number of New Zealanders departing for short visits overseas increased by just 2%. These trends reflect the relative
performance of the New Zealand economy and the impact of the weak exchange rate on the attractiveness of New Zealand as
a tourist destination (both for overseas and domestic tourists).
Looking ahead, there is some risk that retail sales volumes weaken further from current levels - perhaps including
outright decline - if consumer confidence were to remain at its current weak level. This would most likely reflect a
fall in sales of durable items, to levels more consistent with recent activity in the housing market. However, recent
economic news as been slightly more positive than in previous months, and this should help to strengthen consumer
sentiment. A sharp reduction in the net migration outflow over recent months, if sustained, should also help to underpin
retail sales. Nonetheless, it is our expectation that domestic demand will remain relatively subdued over the
foreseeable future, with net export growth providing the key engine of economic growth.
It remains our view that the RBNZ will leave the OCR unchanged at 6.5% when it next reviews monetary policy settings on
6 December. However, providing that the risk noted above is not realised materially, we expect that a combination of
improving economic indicators and concerns about the medium-term implication of the sharp spike in the near-term
inflation profile - to a peak of around 3.8% in Q2 2001 - will encourage the RBNZ to resume the tightening cycle with a
25bps hike on 14 March.
For the third month in row, the advance monthly estimate has greatly overstated growth in sales. This suggests that the
characteristics of the `early reporters' used to construct the advance estimate are, at present, not fully
representative of the full population (no doubt reflecting divergent trends across different sectors and regions). Thus
future advance estimates should be treated with a greater degree of caution.
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