Retail Spending Strong Last Year
Statistics NZ released December quarter data on retail spending. They showed that excluding the volatile automotives sector which we economists tend to strip out, and removing price changes, sales rose by a strong 1.5% to be 6.3% higher than a year earlier. The best performing storetype in the quarter was appliances +7%. The worst was accommodation etc –1.4%. Sales of durable goods (traditionally bought strongly when people feel confident of the future) jumped 5.7% to be 12.5% ahead of a year earlier. But December month sales were flat ex-auto suggesting strong growth is easing.
On a regional basis one must be extremely wary of making strong statements as there are high standard errors. With this in mind we note that in the December quarter top sales growth was in non-Canterbury South Island +2.6%. The worst was Canterbury –0.1%. Auckland jumped 2%.
WHY DID THIS HAPPEN?
Strong growth in retail spending the past year reflects the following.
Below average interest rates from mid-2001.
Catch-up spending by farmers in response to record incomes.
A surge in dwelling construction.
Strong population growth courtesy of net migration flows.
Strong growth in foreign student numbers.
Above average consumer confidence.
Rising wealth from house prices on average 8.5% higher in the September quarter than a year earlier.
WHO IS AFFECTED AND HOW?
Borrowers as the 1.5 growth suggests a firm domestic economy offsetting export weakness and leaving the Reserve Bank wary of cutting interest rates again.
Exporters as the exchange rate tends to face upward pressure when areas like retail spending are strong.
Employers as the 1.5 growth suggests firm pressure on the availability of employees for other sectors with wholesaling and retailing accounting for some 17% of total employment.
Government funded people/organisations as high retail sales means high GST receipts means high surpluses and some extra cash to distribute – or tax cuts.
WILL THIS CONTINUE?
We expect retail spending growth to slow down this year for the following reasons.
Slower jobs growth.
The Middle East conflict hitting confidence.
Reduced farm incomes and absence of the farm catch-up spending on durables.
Higher petrol prices.
Nonetheless sales will remain underpinned by the following factors.
Rising house prices.
High job security.
Strong house building/furnishing.
Still strong net migration inflows.
Below average interest rates all year.
Rising exchange rate assisting consumer confidence.
Ex-auto sales have grown 3.5% p.a. on average the past decade. We forecast growth potentially more than 1% below this over 2003, recovering over 2004 as world growth lifts export incomes again.