Data Flash (New Zealand)
NZ: Retail Sales - August 2001
Key points
Total nominal retail sales fell 0.6% mom in August but were 5.5% higher than a year earlier. The market had expected
growth of 0.3% mom.
The decline was fully accounted for by an unusual 8.7% fall in department store sales - the largest monthly decline in
eight years. Statistics NZ attribute the decline to store closures and an easing of sales growth in the remaining
stores.
Eight of the remaining twelve non-automotive store-types recorded higher sales in August, probably helped in some cases
by the diversion of sales as a result of department store closures. Strong growth was recorded in the tourist-related
storetypes (accommodation hotels and liquor, +3.1% mom; cafes, restaurants and takeaways, +1.5% mom) and in those
store-types with strong links to the housing sector (hardware, +2.0% mom; appliance retailing, +0.9%mom). Both the motor
vehicle sale and services storetypes recorded lower sales in August, with the 2.2% decline in motor vehicle services
likely to partly reflect a similar-sized fall in average petrol prices during the month. Excluding motor vehicle sales
and services, retail sales fell by a more modest 0.2% mom and were 6.8% higher than a year earlier.
On a regional basis, sales declined in all regions apart from the non-Canterbury Regional Council area of the South
Island.
Commentary
We are hesitant to read too much into the August result at this stage. To some extent, department store closures may
have upset shopping patterns, leading to temporarily lower sales during the month (although some competing department
and non-department stores will have benefited as customers quickly went elsewhere).
That said, growth in consumer spending has weakened over the past two months from the heady levels seen in the first
half of the year. But ongoing growth at more modest levels seems likely to continue, at least in the near term,
supported by rising wage and salary settlements, increased employment levels, strong growth in farm incomes and low
interest rates (especially in real terms).
Given our expectation of modest growth in retail sales in September (despite the terrorist attacks in the US on 11
September) and our preliminary forecast of a 0.6% qoq increase in the retail trade deflator, retail volumes appear on
track to record growth of 0.8% qoq in Q3. This data will be released on 7 November - a week before the next RBNZ
Monetary Policy Statement.
Looking further ahead, events in the US on 11 September have reinforced an already deteriorating trend in the global
economy. As a result, the outlook for the New Zealand economy in 2002 is now decidedly less favourable. For this reason,
although the domestic economy has remained resilient to date, our central view is that the RBNZ will cut its OCR by a
further 25bps to 5% on 14 November.
The outcome of this Thursday's QSBO business survey - the first major survey to fully capture the mood of business post
the US attacks - will be important in consolidating the market's views regarding the path of the OCR, as will next
Monday's Q3 CPI.
At this stage we think a 5% OCR, combined with a very stimulatory exchange rate, should be sufficient for the economy to
continue to ride out the global slowdown. Over the next year we expect New Zealand to record economic growth of just a
little below trend (we forecast growth of around 2% yoy in 2002) - an outcome that we expect will not concern the RBNZ.
Indeed, we believe a period of slightly-below trend growth will help to alleviate capacity pressures that threaten to
put upward pressure on core inflation.
Darren Gibbs, Senior Economist
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