New Zealand Retail Sales Fall: Blame Post Rugby Blues

New Zealand Retail Sales Fall

Blame Post Rugby Blues

Retail sales growth fell sharply in Q1 2012 as the boost from the Rugby World Cup reversed. Total sales fell by -1.5% in volume terms, well below market expectations of a -0.5% decline, but remain +3.4% higher in annual terms. The main drivers of the Q1 fall were supermarkets and accommodation – which both recorded strong growth in the previous two quarters. The weaker result will likely mean consumption acts as a drag on Q1 GDP growth. We still think the next RBNZ move will be up, but the risk is increasing that they will be on hold for some time yet.

Facts
- Total retail sales volumes fell by -1.5% in Q1 2012 (market had -0.5%). Core retail sales, which exclude the two auto-related categories, posted its largest decline on record (-2.5%). In annual terms, total sales rose by +3.4% while core retail sales were up +3.3%.

- The main subtracters during the quarter were also the ones which grew strongly in the previous two quarters: supermarket and grocery stores (-7.4%), accommodation (-5.0%) and department stores (-1.9%). Modest rises occurred in pharmaceutical and other retailing (+2.6%) and recreation (+4.6%).

- In value terms, total retail sales fell by -0.8% in Q1 2012 while core retail sales decreased by -2.0% - the largest decline since the series began in 1995. In annual terms, the value of total and core retail sales increased by +4.4% and +3.5% respectively.

- Pricing pressures remained muted in Q1 2012 with the retail price deflator (in seasonally adjusted terms) rising by +0.7% for total retail sales and +0.5% for core retail sales.

- In related news, the value of electronic card spending rose by +0.8% in April, following a +0.3% rise in the previous month.

Implications
Some pull back in retail trade was expected for Q1 given the impact hosting the Rugby World Cup (RWC) had on the previous two quarterly retail numbers. However, we do not think the weaker than expected Q1 print is an indicator of any emerging weakness in the broader local economy. Looking at the sub categories, it is clear the Q1 result was mainly driven by a correction in primarily two categories: supermarkets and accommodation. Both were the main beneficiaries of the RWC and the influx of an extra 80,000 visitors. Also, given the size of the supermarket category at close to 24% of total retail sales, any significant movements in the category will have a dramatic impact on the quarterly result.

Retail sales make up over three-quarters of private consumption so the weaker Q1 print is likely to make a weaker contribution (-1.2ppts) to Q1 2012 private consumption. In contrast to the softer retail numbers, more timely data from electronic card transactions show sales grew modestly in March (+0.3%) and April (+0.8%), which indicates retail sales could have stabilised.

Bottom line
The post Rugby World Cup pull back in retail sales surprised on the downside in March.

We do not see this as any emerging weakness in the overall economy given the localised declines in two major categories. Rather we see it as temporary volatility induced by last year’s rugby event.

We continue to see the next RBNZ move as likely to be up rather than down, although the risk is that they could be on hold for longer than we currently expect, with our next move still pencilled in for H2 2012.

ENDS

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