NZ retail volumes up, will boost 2Q GDP figures

NZ retail volumes up, will boost 2Q GDP figures

• Retail sales surprisingly rose 0.1%m/m in June
• Headline number inflated by auto sales
• 2Q volumes were firm, as expected, due to significant discounting

Retail sales in New Zealand unexpectedly rose 0.1% (J.P. Morgan -0.5%, Consensus -0.3%) in June, after a stronger than expected 0.8% increase in May. The figures were inflated, however, by strength in the auto sector, as dealers cleared stock at the end of financial year. The ex-auto measure of retail sales fell 0.4%, continuing the trend in consumer weakness that has been in place since 2007. The specter of recession, which has (thus far) lasted five quarters, has cast a long shadow over Kiwi consumers, with increased anxiety about job security and weakening wage growth weighing on consumer sentiment. The fall in the ex-auto measure also was unsurprising given the 1.2%m/m slump in electronic card transactions in June, the biggest monthly drop since late 2007.

In the detail, clothing and soft goods retailing, an important indicator of discretionary spending, plummeted 9.1% over the month. Cafe and restaurant spending was down, with takeaway food retailing rising in its place, a further sign of Kiwi households continuing to tighten their belts.

The report did, however, provide good news for near-term GDP figures. Significant discounting by Kiwi retailers boosted retail sales volumes in the second quarter, which were up 0.4%q/q (J.P. Morgan 0.4%, Consensus 0.2%). Appliance retailing (up 3.1%q/q) and automotive fuel retailing (up 2.8%) were the biggest contributors to the growth in volumes.

Sales volumes are an important input to the consumption sector aggregate in the economic growth figures. With the end of recession coming into sight (we forecast the recession to end in the current quarter – Q3), the recovery of the Kiwi consumer also should be on the horizon. Substantial support via aggressive earlier interest rate cuts, commentary suggesting the RBNZ will not tighten policy for some time, and stabilization in the housing market will buoy sentiment in 2H09.

ENDS

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