NZ: Retail Sales Strengthen Further In April
Data Flash (New Zealand)
Total nominal retail sales rose 0.9% mom in April - the market had expected growth of 0.5% mom.
Six of the thirteen non-automotive storetypes recorded increased sales. In absolute terms, the largest increase was again in food retailing. In proportionate terms, the strongest growth was department stores (+4.2%). Appliance and furniture sales also increased, consistent with a sharp pick-up in housing activity during the month. Excluding motor vehicle sales and services, retail sales also increased 0.9% mom.
Both the motor vehicle sales and services storetypes recorded higher sales in April. Car sales rose 1.2% mom, consistent with registration data which has shown a significant pick-up in recent months (though registrations were down marginally in May).
On a regional basis, the strongest growth was recorded in the Auckland regional council area. While this was likely influenced by a one-off payout to some Auckland residents (256,000 customers of the Vector power lines network received over $500 each), we note that Auckland had also achieved above-average growth in each of the previous two months. The Waikato regional council area recorded a small fall in sales, but this follows very strong growth in March (sales remain 10% higher than a year earlier). Monthly data at the regional level are particularly volatile and should be treated with caution.
The ongoing strength exhibited by retail sales in April was in line with our own more bullish view of the strength of the domestic economy. We put the latest result down to:
robust levels of consumer confidence during April;
a significant pick-up in housing market activity;
the ongoing influence of strong growth in labour and farm incomes; and the one-off impact of the Vector payout discussed above.
Looking ahead to May and June, we expect robust growth to continue, but at a less rapid pace than seen in recent months, largely reflecting the reduction is consumer confidence over the past month. Assuming 0.5% growth in nominal sales sales over both May and June, our analysis suggests that this would result in a 2.2% qoq increase in nominal seasonally adjusted sales in Q2. Pending the release of the Q2 CPI (which we expect to record an increase of 0.8% qoq), we estimate that the real trade deflator will record an increase of 1.1% qoq. Thus, given the nominal growth assumed above, we estimate that real retail volumes would rise by a further 1.1% qoq in Q2, following the much stronger than expected 1.4% qoq growth reported in Q1. Indeed, even with no further growth in nominal retail sales in May or June, we estimate that real growth of 0.5% qoq would be reported by Statistics New Zealand.
Pending the release of the final partial GDP indicators for Q1 (due next week), we see upside risk to our preliminary Q1 GDP estimate of +0.8% qoq.
Furthermore, with the retail and net export sectors expected to make a strong contribution in Q2, a further +0.8% qoq appears on the cards. Today's result joins the growing list of data pointing to a stronger domestic economy than many commentators had anticipated prior to the RBNZ's May Monetary Policy Statement. In the absence of a dramatic turnaround in domestic data, a significant further weakening in the global picture, or a substantial collapse in commodity prices, the prospects for further monetary policy easing in New Zealand are becoming increasingly remote.
The market has increasingly come to accept this as the most likely scenario over the past two weeks. That said, over the near-term, we think the risks of further easing far outweigh those of an unexpected tightening, with all eyes remaining on developments in the global economy.