Bumper retail figures for February

By Phil Boeyen, ShareChat Business News Editor

Tuesday 9th April 2002

New Zealand's retail economy continued to gather strength in February lifting 1.8%, well ahead of market expectations of a 0.3% rise.

The seasonally adjusted figure includes motor vehicle storetypes comprising petrol stations and car sales. Excluding these retailers, sales for the core retailing group rose 1.2% compared with January.

Statistics NZ says the sales trend for total retail sales has now been positive since May 1998, increasing 26% over this period.

The largest contributors to the overall increase in total sales in February were the motor vehicle storetypes with motor vehicle sales jumping 4.4% and motor vehicle services rising by 2.3%.

The largest contributors to the 1.2 % increase in the core retailing group were the other stores, appliance retailing and department stores storetypes. Statistics NZ says these contributions were offset by decreases in recreational goods, furniture and floorcoverings and footwear stores.

Deutsche Bank says the very strong result is consistent with its view that first quarter GDP will rebound very strongly from a disappointing fourth quarter last year and may record a quarterly growth rate of 1.5%.

The bank says while strong migration flows and a rebound in tourist arrivals may partially explain the strong retail figures, rising levels of consumer confidence and low interest rates are also important.

"Rural sector spending is also buoyant, reflecting past growth in farm incomes."

Deutsche Bank says the current strength of consumer demand is a clear indication that past easy policy settings are no longer appropriate and that some withdrawal of stimulus is warranted.

"While we still expect the RBNZ to deliver a 25bps hike at next week's interim OCR review, today's data challenges our view that the RBNZ can afford to hike by just 25bps at the subsequent meeting in May, notwithstanding possible inaction by other major central banks."

However the bank also believes that much of the surge in spending is being financed by borrowing and that given high levels of household indebtedness, it would not be surprised if retail spending growth begins to slow markedly as the RBNZ hikes interest rates.

"We also suspect that the implications of recent sharp declines in commodity prices (especially in the dairy sector) are yet to be factored into rural spending decisions.

"For this reason, we remain hesitant to conclude that a very aggressive tightening cycle is warranted. We see the rate cycle peaking at 6.50%," the bank says.

The Reserve Bank raised the OCR last month by 25 points to 5% amid considerable protest from both business and labour groups however in light of the latest retail figures that increase might have been well timed.

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