Retail sales not as good as they look

By NZPA

Tuesday 11th March 2003

Retail sales powered ahead in January, but economists said the figures were inflated by car sales and not as good as they looked.

Sales rose 1.1 percent, much stronger than the 0.4 percent increase forecast by analysts or December's 0.5 percent rise.

Excluding motor vehicle sales and services, however, retail sales rose 0.2 percent, following a flat December.

"If you take the cars out, it's a fairly soft underlying picture," Deutsche Bank AG chief economist Ulf Schoefisch said.

"This is just another figure that suggests on the one hand that people are confident enough to buy cars, but on the other hand it suggests that the underlying picture of spending is weakening."

The increase in retail spending is not expected to prompt a cut in interest rates until at least the middle of the year.

Reserve Bank of New Zealand Governor Alan Bollard last week kept the official cash rate at 5.75 percent, on the grounds there was not enough evidence of a slowdown in spending to justify a rate cut.

Monthly retail data was notoriously volatile, Bank of New Zealand chief economist Tony Alexander said, with a 3 percent margin for error on the 1.1 percent figure.

"In other words, the result could easily be a lot stronger or a lot weaker than the actual estimate."

Even so, retail spending was 7.9 percent higher than a year ago, stronger than expectations of 6.5 percent.

Top performers for the month were department stores (up 9.9 percent), footwear (up 5 percent), and cars (up 4.6 percent).

The big increase in car sales, often seen as a positive signal about consumer confidence, might be more closely linked to strong migration, analysts conceded.

"Everyone needs wheels, especially in Auckland," the BNZ said.

However, seven out of 15 store types recorded falls, including appliances (down 5.8 percent), accommodation (down 2.5 percent) and hardware (down 2.4 percent).

Possible factors behind the weaker core retail sales include below-average consumer confidence, reduced farmer spending, slower jobs growth and the end of a cycle of catch-up spending on durable items like appliances.

A fall-off in appliance and hardware sales reinforced anecdotal evidence that housing turnover may be moderating, Deutsche Bank said.

But "it seems too early to expect this to flow into a significant weakening in consumer demand for items correlated with the housing market".

It was possible the surging New Zealand dollar was leading to a more substantial decline in consumer prices than thought, the bank said.

Although the data finally provides the Reserve Bank with some evidence of a slowing economy, Mr Alexander felt there was still good support for overall retail spending this year .

That echoed a quarterly forecast from the New Zealand Institute of Economic Research today, which said domestic spending would remain strong this year but start to reflect lower export returns next year.

It predicted economic growth for the year to March would be stronger than it last forecast at 4.3 percent but would then steeply drop off over the next two years, to 2.7 percent and 1.9 percent.

Comments from our readers

No comments yet