Retail Sales - November 2001
Data Flash (New Zealand)
Total nominal retail sales surged 1.7% mom in November to be 7.8% higher than a year earlier. The market had expected growth of 0.5% mom (the range of forecasts spanned 0.1% to 0.7% mom).
Strength was fairly broad-based with twelve of the thirteen non-automotive store-types recording higher nominal sales. The strongest growth was recorded in the recreation storetype (+4.7% mom following a 3.7% mom rise in October). Other notable rises were recorded in the volatile `other stores' storetype (+4.1% mom), the appliances storetype (+2.8% mom) and the food retailing storetype (+1.5% mom). Despite a sharp decline in tourist arrivals, the accommodation storetype recorded a rise of 2.4% mom. Only furniture stores recorded lower sales (-1.2% mom), although this follows several months of strong growth.
As suggested by strong growth in motor vehicle registrations, motor vehicle sales posted a 5.2% mom rise in November. This rise was exactly offset by a 1.6% mom decline in motor vehicle services (influenced by an estimated 8% decline in average petrol prices). As a result, the `ex-motor vehicle sales and services' measure of core retail sales also rose by 1.7% mom.
On a regional basis, sales rose in all regions, with the strongest growth occurring in the Waikato Regional Council area (+4.1% mom) and in the Canterbury Regional Council Area (+2.6% mom). The Auckland and Wellington regions posted more modest rises of 0.9% mom and 0.4% mom respectively.
Despite printing well outside market expectations, there was little market reaction to the data. With most market commentators interpreting recent inflation data as benign, New Zealand's monetary policy outlook is seen presently as depending more on broad global economic and interest rate trends than often-volatile local data.
Today's outcome was much stronger than the 0.2% mom rise suggested to us by the November credit card spending statistics. While not wanting to dismiss this result, especially in light of favourable anecdotal evidence in recent weeks, it is worth noting that the rise recorded in November followed three months in which sales had been broadly stable. Therefore, we think that there was an element of `catch-up' spending this month (we certainly don't think today's result reflects the trend momentum in sales - a conclusion clearly shared by the market given the total lack of reaction). That said, the consumer sector in New Zealand remains clearly resilient - a theme that seems prevalent across the globe, notwithstanding contraction in the business sector.
Looking forward, it remains to be seen whether such resilience will be carried into 2002. Over most of the last year, retailers have benefited from strong growth in household incomes (driven by higher wage and salary movements, extremely buoyant farm incomes and growing employment levels), robust levels of consumer confidence and rapid growth in tourist arrivals. Many of these positive influences have stabilised or reversed in recent months:
The number of job ads has declined by 14% over the past five months;
If the labour market weakens, wage growth is unlikely to rise further and may decline somewhat;
The ANZ commodity price index has declined by 11% in world price terms since May;
Tourist arrivals have declined by 22% over the three months to November (although anecdotal evidence suggests that some improvement can be expected over coming months).
Nonetheless, even assuming a modest pullback in spending in December, we estimated that nominal retail sales have grown by around 1.5% qoq in Q4. Our analysis of yesterday's CPI result suggests that the retail trade deflator will post a rise of 0.4% qoq. This implies retail sales volume growth of around 1% qoq - stronger than the 0.5% qoq growth that we had factored and the broadly flat result that the RBNZ saw as likely when compiling its November Monetary Policy Statement.
In turn, this implies upside risk to our preliminary estimate of 0.6% qoq GDP growth in Q4 - growth of 1% qoq is not out of the question, with the rebound in the sectors depressed by the electricity crisis in Q3 contributing to that result (GDP growth was just 0.2% qoq in Q3, with the electricity crisis substracting 0.4pps from growth). Such as outcome would likely lead the RBNZ to revise up its estimate of the current level of excess demand in the economy, making further interest rate cuts unlikely even given an expected period of below-trend growth in early 2002.
However, given continued uncertainty about the shape of any recovery in the global economy and recent domestic inflation data that has been in line with the RBNZ's expectations, we continue to expect that the RBNZ will be hesitant to take back quickly last year's `insurance' easing. Therefore, the first tightening is not expected to occur until Q3 2002 - consistent with our expectation for the timing of the first tightening by the US Federal Reserve.
Darren Gibbs, Senior Economist (64) 9 351 1376