Retail Sales - August 2001
Data Flash (New Zealand)
NZ: Retail Sales - August 2001
Total nominal retail sales fell 0.6% mom in August but were 5.5% higher than a year earlier. The market had expected growth of 0.3% mom.
The decline was fully accounted for by an unusual 8.7% fall in department store sales - the largest monthly decline in eight years. Statistics NZ attribute the decline to store closures and an easing of sales growth in the remaining stores.
Eight of the remaining twelve non-automotive store-types recorded higher sales in August, probably helped in some cases by the diversion of sales as a result of department store closures. Strong growth was recorded in the tourist-related storetypes (accommodation hotels and liquor, +3.1% mom; cafes, restaurants and takeaways, +1.5% mom) and in those store-types with strong links to the housing sector (hardware, +2.0% mom; appliance retailing, +0.9%mom). Both the motor vehicle sale and services storetypes recorded lower sales in August, with the 2.2% decline in motor vehicle services likely to partly reflect a similar-sized fall in average petrol prices during the month. Excluding motor vehicle sales and services, retail sales fell by a more modest 0.2% mom and were 6.8% higher than a year earlier.
On a regional basis, sales declined in all regions apart from the non-Canterbury Regional Council area of the South Island.
We are hesitant to read too much into the August result at this stage. To some extent, department store closures may have upset shopping patterns, leading to temporarily lower sales during the month (although some competing department and non-department stores will have benefited as customers quickly went elsewhere).
That said, growth in consumer spending has weakened over the past two months from the heady levels seen in the first half of the year. But ongoing growth at more modest levels seems likely to continue, at least in the near term, supported by rising wage and salary settlements, increased employment levels, strong growth in farm incomes and low interest rates (especially in real terms).
Given our expectation of modest growth in retail sales in September (despite the terrorist attacks in the US on 11 September) and our preliminary forecast of a 0.6% qoq increase in the retail trade deflator, retail volumes appear on track to record growth of 0.8% qoq in Q3. This data will be released on 7 November - a week before the next RBNZ Monetary Policy Statement.
Looking further ahead, events in the US on 11 September have reinforced an already deteriorating trend in the global economy. As a result, the outlook for the New Zealand economy in 2002 is now decidedly less favourable. For this reason, although the domestic economy has remained resilient to date, our central view is that the RBNZ will cut its OCR by a further 25bps to 5% on 14 November.
The outcome of this Thursday's QSBO business survey - the first major survey to fully capture the mood of business post the US attacks - will be important in consolidating the market's views regarding the path of the OCR, as will next Monday's Q3 CPI.
At this stage we think a 5% OCR, combined with a very stimulatory exchange rate, should be sufficient for the economy to continue to ride out the global slowdown. Over the next year we expect New Zealand to record economic growth of just a little below trend (we forecast growth of around 2% yoy in 2002) - an outcome that we expect will not concern the RBNZ. Indeed, we believe a period of slightly-below trend growth will help to alleviate capacity pressures that threaten to put upward pressure on core inflation.
Darren Gibbs, Senior Economist
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