Unexpected rise in retail sales values

Unexpected rise in retail sales values

·        Retail sales values rose in February, buoyed by fuel retailing
·        Ex-autos sales fell 0.1%m/m
·        RBNZ to cut OCR 50bp in April

Retail sales values in New Zealand unexpectedly rose 0.2%m/m in February (J.P.Morgan -0.6%, consensus -0.5%), marking the first rise in five months. The modest rise, though, followed a sharp 1.2% decline in January, revised down from a previous estimate of -1.1%. Once again, vehicle-related industries recorded the most significant movements, with automotive fuel retailing up 6.7% over the month, the largest increase in 15 months. Ex-auto sales remained weak, falling 0.1%m/m.

As anticipated, the largest falls were in discretionary areas of retailing. Recreational goods and hardware retailing were down 4.9%m/m and 5.3% in February. Owing to a rise in food prices (up 0.2%m/m in February), though, supermarket sales and sales of take away food were up over the month, rising 1.0%m/m and 2.2%, respectively.

The trend in retail sales continued to fall (-0.4%m/m), as it has since January last year, extending the most prolonged period of decline on record. We expect this trend to continue; household spending will fall over 1% in 2009. The income tax cuts delivered from April 1 should help prevent an even larger decline, with the tax cuts giving a worker on the average wage (between NZ$48,000 and NZ$78,000) an extra NZ$18 a week. That said, in our view, a significant portion of these tax cuts will be saved given consumers have become increasingly reluctant to spend amid widespread recession fears and heightened anxiety about job security. Just last week, the NZIER Quarterly Survey of Business Opinion showed that a net 36% of companies plan to shed workers.

With consumption growth weak, the terms of trade falling, and the housing market still on struggle street, the RBNZ has plenty of scope to continue easing policy. We now look for a 50bp cut to the OCR on April 30. Previously we had anticipated “only” a 25bp cut, but we now believe a larger move is warranted, mainly owing to the stubborn, elevated level of longer-term interest rates and recent NZD appreciation, both of which have caused monetary conditions to tighten.

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