Retail sales post second month of stronger growth

Monday 13th July 2009

New Zealand retail sales rose more than expected for a second month in May, suggesting lingering effects of the April 1 tax cuts, lower interest rates and a pick-up in net migration are fueling revenue at stores.

Total retail sales rose 0.8% in May, seasonally adjusted, after gaining 0.5% in April, according to Statistics New Zealand. Sales were expected to be flat, according to a Reuters survey. Excluding autos, core retail sales jumped 1.6%, the biggest gain since February 2007, while vehicle-related sales dropped 1.8%.

The sales gain was led by a 12.6% jump in clothing and softgoods, as the early arrival of the winter chill sent consumers scrambling for warm clothes. Supermarket and grocery sales climbed 2.2%.

There was little immediate reaction in the New Zealand dollar or the shares of retailers as there are signs retail spending has cooled again since May. June retail spending on debit and credit cards had the steepest decline since November, led by a drop in purchases of furniture and appliances, according to figures last week.

“There’s still the impulse from the tax cuts on April 1, lower interest rates and surging net migration,” said Doug Steel, economist at Westpac Banking Corp. Analysts may also have under-estimated the impact of “the early onset of winter,” he said.

Still, “even though May was strong, sales probably dipped since then,” based on electronic card spending data, he said.

Retail transactions on credit and debit cards fell 1% in June, the first decline in five months, following a 0.7% gain in May, according to Statistics New Zealand data last week. Transactions at core retailers, which exclude auto-related sales, sank 1.2%.

The New Zealand dollar traded at 62.80 US cents after the figures, from62.74 cents immediately before the release. The NZSX Consumer Index, which includes the listed retailers, edged up 0.1%, driven by a 3% gain in Restaurant Brands New Zealand, with all other index members either unchanged or down. The index has gained 1.1% in the past month, outpacing a 3% decline in the NZX 50 Index.

New Zealand net migration rose to the strongest rate in nearly six years in May, stoking optimism the influx will start to underpin demand in the domestic economy. Seasonally adjusted, a net 2,690 migrants arrived in May, the most since July 2003 when 2,800 permanent and long-term visitors arrived, according to government figures last month.

Reserve Bank Governor Alan Bollard has kept the official cash rate at a record low 2.5% and said rates would probably stay low until the second half of 2010, with the economy not expected to climb out of its worst slump in 30 years until the fourth quarter of this year.

Among 20 core retailing industries, 13 rose and seven fell, according to today’s report. Automotive fuel retailing fell 2.7% and motor vehicle sales declined 1.9%.

Businesswire.co.nz

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