Retail Sales - July 2001

Data Flash (New Zealand) NZ: Retail Sales - July 2001

Key points

Total nominal retail sales rose 0.6% mom in July. The market had expected growth of 0.3% mom. Sales growth in both May and June were revised up 0.1pps to 0.5% mom and 1.3% mom respectively.

Six of the thirteen non-automotive storetypes recorded higher sales while food sales were virtually unchanged. The strongest growth was recorded in the recreation (+3.7% mom), furniture (+3.3% mom) and chemist (+2.9% mom) storetypes. Lower sales were recorded in the hardware (-2.7% mom) and footware (-2.7% mom) storetypes.

Both the motor vehicle sale and services storetypes recorded growth of 1.0% mom. Excluding motor vehicle sales and services, retail sales rose 0.4% mom and 6.8% yoy.

On a regional basis, positive growth was recorded in all regions with the exception of the Auckland and Wellington regional council areas (both areas recorded above average growth in April, with growth in Auckland no doubt influenced by the one-off pay-out received by some Auckland residents as a result of the return of capital from the Vector power lines network).

Commentary

Consumer spending continues to gather pace supported by rising wage and salary settlements, increased employment levels, strong growth in farm incomes, robust levels of confidence and low interest rates (especially in real terms). Given further modest growth in August and September and our forecast of a 0.6% qoq increase in the retail trade deflator, retail volumes appear on track to record growth of 1% qoq or greater in Q3 for the third consecutive quarter.

As for the RBNZ and monetary policy, it remains our central view that the Bank's easing cycle concluded in May and that the next move in the Bank's OCR will be a 25bp tightening in Q1 2002, most likely at the March Monetary Policy Statement. However, if there is to be a change in the OCR this side of Xmas, we think it is still far more likely to be a rate cut than a rate hike, with global growth concerns likely to be the initiating factor.

As an aside, we think that yesterday's easing by the Reserve Bank of Australia (RBA) does not add materially to the prospects of further easing by the RBNZ, despite the potential `peer' pressure stemming from recent easing moves elsewhere (eg the Fed, ECB, Bank of Japan, Bank of Canada, Bank of England and now the RBA). Four factors drive us to this view.

The recent easing moves undertaken in the US, Europe, Japan, Canada and the UK reflect glaring weakness already present in the respective economies. New Zealand's economy - and Australia's for that matter - remains quite robust at this point and thus the case for further easing is weaker.

We think that much of the analysis in the statement that accompanied the RBA's easing could be applied in the New Zealand context - in particular, the risk that the global downturn will eventually undermine commodity prices. However, crucially, both the RBNZ's and our own analysis suggests that the New Zealand economy does not appear to have `the degree of spare capacity' that has given the RBA confidence to ease further, reflecting divergent trends in the New Zealand and Australian labour markets over the past year.

The apparent willingness of the RBA to provide further monetary stimulation to the interest rate sensitive sectors of the Australian economy - consumer spending and the housing market - will be of direct benefit to New Zealand exporters.

Historically, the RBNZ has interpreted its inflation target more strictly than the RBA. While we believe that the RBNZ has adopted a more medium-term approach to achieving its target over the past year, we don't think that they have moved as far as the RBA.

Darren Gibbs, Senior Economist

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