Retail Trade Sector Weakening
Statistics New Zealand released monthly data showing sales by various types of shops and an overall retail sales number. The data can be highly volatile on a monthly basis and at the regional level not reliable at all for just one month. The quarterly data are best. But with this caveat in mind we learned today that nominal seasonally adjusted retail spending was 7.9% higher in January than a year ago and 1.1% up from December. This is a strong result, however if one removes the often very volatile automotives sector sales actually gained only a minor 0.2% in January after being flat in December and were only 5.8% ahead of January 2002. Top performers in the month were footwear +5%, department stores +9.9%, and cars +4.6%. The weakest were appliances –5.8%, accommodation etc. –2.5%.
WHY DID THIS HAPPEN?
The weak ex-auto results for the past two months likely reflect
consumer confidence falling to below average levels,
reduced farmer spending due to falling incomes,
slower employment growth,
ending of a period of catch-up spending on durable goods like appliances, couches etc.
normal monthly volatility as SNZ estimate we can be 95% sure the actual result for January was 3% either side of their estimate showing a 1.1% gain. In other words the result could easily be a lot stronger or a lot weaker than the actual estimate.
WHO IS AFFECTED AND HOW?
Retailers because the data suggest the boom times from July to November when ex-auto sales grew on average 0.7% a month have well and truly ended. Stock levels may need addressing.
Borrowers because the data do finally suggest some slowing in the domestic economy – one of the factors cited by the Reserve Bank as necessary before they contemplate cutting the cash rate from 5.75%.
House builders because if people are cutting back on retail spending they will also eventually cut back on house building, but this will probably not be felt in the housing sector until late this year given the backlog of orders to fill.
WILL THIS CONTINUE?
We think there is good support for overall retail spending this year from
migration driven population growth,
below average interest rates,
rising house prices,
strong housing construction
a tight labour market.
We interpret the
recent weak ex-auto results as reflecting a period of
adjustment from unsustainably strong growth to something
more normal. However, ex-auto retail spending will likely
grow below the average 3.5% volume gain of the past ten
years this year (last year was 5.2%) due to falling farm
incomes and below average consumer confidence caused by
worries about the world economy and geopolitical