NZ retail sales values fall, volumes plunge

New Zealand's retail sales values fell in March; volumes plunged over the quarter

Today's New Zealand retail spending report for the month of March and the March quarter produced mainly weak results. The value of retail sales in March dropped 0.4% (JPMorgan -0.6%, consensus 0.5%), although sales ex-autos rose more than expected. Importantly, though, the volume of retail sales over the March quarter unexpectedly plunged 2.9% (consensus -1.8%), the fifth straight quarterly decline. This indicates that first quarter GDP is likely to be even weaker than we anticipated before the data. We have been forecasting a fifth straight quarter of falling GDP but, in the wake of today's data, the risks are skewed heavily to the downside.

The biggest fall in retail sales in March was in personal goods and hiring, which dived 15% over the month, albeit after a 12% rise in February. Appliance sales dropped 4.7% and sales of furniture and floor coverings fell 3.1%. Sales in department stores dived 2.9%. The biggest rises in sales were for fresh produce (up 8.3%), footwear (up 6.3%) and takeaway food (up 2.6%). Sales at auto dealers and workshops, including sales of fuel, though, were very weak - fuel sales, for example, dived more than 7% over the month. The 0.5%m/m rise in retail sales ex-autos in March, therefore, was the strongest since last November.

In volume terms, the 2.9%q/q plunge in sales in the March quarter (after a 0.7% fall in the December quarter) was the largest in the history of the ex-inflation survey, which dates back to the mid-1990s. The unexpected weakness was concentrated in auto sales (down 11%), appliance retailing (-5.9%), bars and clubs (-5.6%) and hardware (-4.5%). There were, however, healthy rises for personal goods (+5.3%), recreational goods (+1.6%) and footwear (+5.0%). The weakness in sales ex-inflation implies consumer spending will take an even larger slice from GDP growth in the March quarter. Before the data, we forecast a 1.0% drop in consumer spending in the March quarter, and a 0.3% fall in real GDP.

In terms of the policy outlook, today's weak retail data strengthens our view that the RBNZ's easing cycle is not yet over. We anticipate "only" a 25bp rate cut on 11 June, which will take the OCR down to 2.25%. In the wake of today's data, however, the dominant risk is that Governor Bollard decides to trim the cash rate more assertively.

ENDS

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