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Retail Sales NZ - June Quarter 2000

Data Flash (New Zealand) Retail Sales NZ - June Quarter 2000 Key Points

Retail sales (nominal, s.a.) increased by 0.5% in June, following results of +0.1% and +0.8% for the preceding two months.

Taking Q2 as a whole, the value of sales increased by 1.0% relative to Q1. With the retail trade deflator rising by 0.6% in Q2, the volume of retail sales grew by 0.4%.

Retail sales volumes were 4.0% higher than a year ago.

Excluding motor vehicle sales and services, retail sales volumes rose by 1.0% qoq in Q2 and were up 4.8% on last year.

The storetypes to record the strongest percentage growth in volumes during the quarter were accommodation/ hotel/liquor (+2.4% qoq), food (+1.9% qoq), motor vehicle services (+1.5% qoq), furniture (+1.1%) and chemists (+1.4%). The largest falls in volume were recorded for motor vehicle sales (-3.1% qoq), clothing (-3.2%) and footwear (-1.5%).

On a regional basis, an overall flat result for Auckland and Wellington was offset by strong demand in the regions. Nominal sales growth was +1.0% nationwide, with 2.3% qoq recorded for the Waikato, 1.3% for the remainder of the non-urban North Island, 1.6% for Canterbury, and 3.1% for the remainder of the South Island.

Commentary The Q2 retail trade result reflects a consolidation in household spending. Given the decline in business and consumer sentiment, today's result suggests that domestic demand has been holding up relatively well. Strong export earnings are showing through in spending patterns in the regions, which has been offsetting softer demand in the main centres. While a strong increase in tourism spending has provided support for retail sales, there is little evidence of a feared contraction in domestic consumption on the back of softening consumer confidence. Consequently, we maintain our GDP growth forecast of +0.2% for Q2. Following the partial recovery in business confidence, there have also been tentative signs of a bottoming in consumer confidence in the monthly Colmar Brunton and NBR surveys.

With the trend in PAYE tax data showing relatively strong household income growth (contradicting the weak official data on the labour market), we expect a small positive growth rate for household spending to be repeated in Q3. That is consistent with our view of a gradual recovery in GDP growth over the second half of this year. Looking towards next week's Monetary Policy Statement, today's data provides support for the view that the economy has retained some underlying strength, with good growth fundamentals going forward.

Considering the forthcoming rise in inflation to 3% and potential second-round effects, we continue to believe that the RBNZ will raise rates by 25 bps on 16 August, although the probabilities are close to 50:50. Even if the cash rate is left unchanged, the Monetary Policy Statement is likely to be reasonably hawkish with respect to future rate hikes.

Ulf Schoefisch, Chief Economist (64) 9 351 1375

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