NZ's retail sales numbers unlikely to be sustained

Strength in New Zealand's retail sales numbers unlikely to be sustained

Retail sales spiked 0.8%m/m in May

Ex-auto sales surged 1.6%m/m

Spending to remain subdued near term

Retail sales values in New Zealand were unexpectedly strong in May, rising 0.8% (J.P. Morgan -0.2%, consensus 0.2%), making the largest monthly increase since November 2007 and beating all market economists’ expectations. Indeed, the strength in spending was surprising. Remember, the retail numbers are in value terms and, partly owing to this reason, we had expected a mild fall in sales values in May given the heavy amount of discounting by Kiwi retailers.

The series has been particularly volatile in recent months, however, due to the car sales component. The 1.6%m/m rise in core retailing in May, though, was the largest since February 2007, and underpinned by solid sales at supermarket and grocery stores (+2.2%) and clothing and soft goods retailing (+12.6%).

We have our doubts, though, as to whether such strong retail numbers will be sustained. It appears that New Zealand retailers suffered a big setback in June, with data last week showing that monthly electronic card transactions slumped 1.2%m/m, marking the biggest monthly drop in the core retail sales figures since October 2007. Total electronic card transactions were down 0.4%m/m, while all retail industries (including fuel and automotive) were down 1%.

Widespread anxiety about job security will throw another spanner in the works. Rising unemployment probably is the biggest headwind facing consumers and, with the business surveys pointing to more firms shedding workers, the unemployment rate will continue to rise – on our forecast, approaching close to 8% in 2010. The resulting fall in labour income, combined with rising petrol prices, will eat into households’ disposable incomes, supporting our view that private consumption will contract in 2009.

Net migration and signs of stabilization in the housing market should soften the blow. A Roy Morgan survey (released earlier today) showed that consumers are less pessimistic about their future wealth, thanks to lower interest rates and recent signs of stabilization in the housing market. Housing market turnover has increased and other indicators, such as home loan approvals, are pointing to signs of recovery. Consumers also should feel fairly confident that the cash rate will remain near or at record lows for the remainder of the year. We believe that the OCR already has bottomed at 2.5% in the current easing cycle, but the next move won’t be for a while yet, with our forecast calling for the RBNZ next rate move to be a hike in mid-2010.

New Zealand Economic Update (pdf)

ENDS

© Scoop Media