Retail sales falter in March

By Phil Boeyen, ShareChat Business News Editor

Friday 10th May 2002

Latest figures show retail sales fell slightly in March, prompting Deutsche Bank to suggest that consumer demand may have moved beyond its peak.

Seasonally adjusted retail sales in March were 0.8% lower than in the previous month, although sales for the three months ended March rose 2.6% compared with the December 2001 quarter.

This was a result of monthly increases of 0.6% in January 2002 and 2.0% in February 2002, combined with a fall of 0.8% in the March 2002 month.

Statistics New Zealand says growth in the March quarter was broad based, with all 15 storetypes recording higher seasonally adjusted sales compared with the December quarter. The largest increase occurred in the food retailing storetype, followed by motor vehicle services.

"Good Friday and Easter Sunday fell in the month of March this year for the first time since 1997. As a result, March 2002 had less trading days than previous March months due to stores closing on these public holidays.

"As there is insufficient data to support analysis of an Easter effect, the impact that this loss of trading days has had on sales estimates is difficult to quantify."

Deutsche Bank says Friday's retail data, in conjunction with yet another survey pointing to a downward correction in consumer confidence, suggest that the consumer demand cycle may have moved beyond its peak.

"While the overall March quarter retail result was strong, up 2.2% quarter on quarter, it merely confirmed other indicators, which had already pointed to strong GDP growth for that period," says chief economist Ulf Schoefisch.

"It should be noted that the first quarter retail result was driven by activity in January and February. A downward correction was recorded for the March month and today's consumer poll published in the National Business Review confirmed a recent deterioration in consumer sentiment recorded by the TV1 and TV3 polls."

Mr Schoefisch says the trend is not surprising considering recent increases in interest rates and a marked deterioration in the outlook for farm incomes.

"Furthermore, while employment growth has been robust, the upward trend in wage inflation seems to have stalled.

"Going forward, the actual reduction in farm incomes, as well as a plateauing and likely downward correction in the migration cycle, is expected to drive a natural slowdown in consumer demand growth. Given those forces, and taking into account the high level of household indebtedness, the case for a more aggressive RBNZ tightening cycle is weak."

Deutsche Bank says it continues to expect the Reserve Bank to raise the official cash rate next week by 25 basis points but would be surprised it increased the rate by 50 basis points.

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