Retail sales surge but economists say it won't last

By NZPA

Friday 7th June 2002

New Zealand's retail sales boom continues, with April sales figures easily beating market expectations.

Seasonally adjusted sales rose by 2.6 percent in April compared to the previous month. The market had expected a 1 percent increase.

Statistics New Zealand attributed the rise in part to the "Easter effect" -- extra trading days because Easter had fallen in March this year.

Nevertheless, figures for the first quarter of 2002 showed that even with Easter distortions smoothed out, the annual growth in retail trade was 9.1 percent.

"This is the fastest pace since late 1994," the Bank of New Zealand noted.

Deutsche Bank put the growth down to strong employment, reasonable wage growth, robust consumer confidence and a flow-on effect from previously strong farm incomes.

Other factors included a rebound in tourist arrivals, more migrants, a buoyant housing market and the lagged impact of low interest rates.

If the pace continued, the Reserve Bank would probably have to raise interest rates further, Deutsche Bank senior economist Darren Gibbs said. But he did not believe the trend would last.

"We believe the recent growth is not sustainable and that a substantial slowing down of retail activity is likely over the remainder of the year."

He predicted retail sales would fall by 0.9 percent in May as the effect of falling farm incomes, a stronger dollar, weakening commodity prices, declining petrol prices and tighter monetary policy came into play.

Analysts noted that a spending binge on motor vehicle sales had also inflated figures. Car sales rose 7 percent in April but already registrations were falling .

On a year-by-year basis, retail sales in April were 11.3 percent higher than a year earlier. Core retail sales, which exclude car sales and services, rose by 1.7 percent.

Consumers spent $4.049 billion at retail outlets during the month, with increases in almost every segment of the retail sector, especially in appliances which grew by 10.2 percent.

The BNZ noted that even if there was a decline in retail sales in May, June quarter figures would reflect April's shopping spree. The bank's analysts were expecting a retail growth rate of 1.5 percent, and a growth rate in second quarter gross domestic product of 0.9 percent.

The current rosy picture for retailing was unlikely to have added "much, if any" pressure to the Reserve Bank.

"The May Monetary Policy Statement forecasts already made it clear that the bank expects a solid consumption performance in the year ahead of around 3.25 percent.

"The bigger issue for the bank, as it gauges the extent of further Official Cash Rate hikes, remains the rising exchange rate and what it means for incomes, growth and inflation into next year."

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