Retail sales slightly firmer on car sales

New Zealand: retail sales slightly firmer on car sales

• Retail sales slightly firmer on car sales
• Ex-autos sales fell 0.1%m/m in April
• Private consumption to fall in 2009

Retail sales values in New Zealand were up 0.5%m/m in April (J.P. Morgan 0.1%, consensus 0.2%), after falling 0.2% in the previous month. Statistics New Zealand (SNZ) reported that retail sales increased in 14 of the 24 store categories, led by a 3.5%m/m rise in the volatile car sales component. Ex-auto sales remained weak, falling 0.1%m/m (J.P. Morgan -0.2%, consensus 0.4%).

Surprisingly, sales in discretionary areas of retailing posted solid gains. Department store sales, for example, were up 4%m/m in April (or NZ$12 million). But, as expected, the trend in retail sales continued to fall (-0.1%m/m). This trend has been in decline since January last year, extending the most prolonged period of decline on record. We expect this to continue, with household spending, on our forecasts, to fall 2% in 2009.

Despite recent improvements in confidence, consumers have become increasingly reluctant to spend amid widespread recession fears and heightened anxiety about job security. Rising unemployment probably is the biggest headwind facing Kiwi consumers. Employment contracted 1.1%q/q and the unemployment rate rose to a six-year high of 5% in 1Q. Further, the number of underemployed increased markedly, with 21% of workers saying they wanted to work more hours. With business confidence near multi-decade lows and companies choosing to shed workers to trim costs, the resulting rise in unemployment will weigh heavily on the consumer.

We can’t rule out further policy support, however. The RBNZ has left the door open to further policy easing, if deemed necessary. We maintain our call for a terminal cash rate of 2.25%, but acknowledge that the RBNZ’s easing cycle may already have met an end. A material change in the global outlook or a significant tightening of domestic monetary conditions, however, probably will trigger a further reduction the cash rate.

Full Retail Sales Report (xls)

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