Retail Spending Receives Americas Cup Boost
For those without economics degrees this is a simple guide to something significant which happened in the world of
economics today that has relevance to the person on the street.
WHAT HAPPENED?
Statistics NZ released monthly data showing that when one removes the volatile automotive sector nominal retail spending
seasonally adjusted rose by 1.7% in February to be 6.4% up from a year ago. This strong rise follows 0.0% growth in
January and a small 0.1% rise in December.
WHY DID THIS HAPPEN?
Consumer spending over the past two years has been boosted aggressively by factors such as record farm incomes below
average interest rates strong jobs growth and high job security high consumer confidence farmers catching up on deferred
‘90s spending a house building boom strong population growth.
But the February result was well out of line with expectations and the flat results from November to January. That was
because it was artificially boosted by a massive 12.5% jump in the Accommodation, Hotels & Liquor storetype group due probably to the Americas Cup. Only seven of the 13 ex-auto storetypes actually recorded
rises in February. Excluding the above sector seasonally adjusted sales only gained 0.5%.
WHO IS AFFECTED AND HOW?
Borrowers because the result will leave the Reserve Bank still slightly cautious about applying extra stimulus to the
economy by cutting already below average interest rates. The 0.5% ex-car, ex-accomm etc. result equates to about 6%
annual, or 4% real and is above average. Retailers who can take some heart that the flat November – January results were
not the start of a completely flat new trend. Consumers because the underlying result suggests there may be some
inventories held by retailers which are greater than they hoped for given strong growth last year. A few decent sales
along the lines of those seen in March may have a bit further to run as adjustments to a less booming environment are
made.
WILL THIS CONTINUE?
No. We expect the rate of growth in retail spending to slow down further this year with underlying volume growth closer
to 2.5% than the 5.3% seen over 2002. Factors causing growth to slow will include the following.
Weak consumer confidence. Slightly weaker tourist spending due to SARS and war worries. Falling farm incomes. Slowing
growth in dwelling construction.
But there will remain good support nonetheless from these factors.
Below average interest rates all this year. Rising house prices. A tight labour market with labour shortages.
Accelerating growth in inflation-adjusted wages. Continued strong net migration inflows. Kiwis staying at home to
holiday rather than travelling offshore. The March result is likely to be very weak as the February surge from the
Americas Cup reverses.