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Retail sales (June and Q2)

Key Points

- The value of retail sales rose 1.2% mom in June, much stronger than the market’s expectation of a 0.4% mom rise. Excluding motor vehicles sales and services, sales rose 1.0% mom.

- Over Q2 as a whole, the value of total retail sales increased 2.3% qoq while the retail trade deflator rose 1.0% qoq (and was 4.7% higher than a year earlier).

- As a result, the volume of retail sales – representing around 40% of private consumption – rose 1.3% qoq to be 2.4% higher than a year earlier. The median market expectation was for a 1.2% qoq increase.

- Excluding motor vehicle sales and services, retail sales volumes also rose 1.3% qoq to be 2.9% higher than a year earlier.

- Strong growth in tourism and the recovery the housing market likely contributed to the robust result. Growth in food retailing accounted for around 60% of overall growth, rising 2.3% qoq. Other notable increases occurred in appliance retailing (+3.1% qoq), hardware (+3.4% qoq), department stores (+4.1% qoq) and motor vehicle retailing (+1.8% qoq).

- On a regional basis, strong growth was recorded more-or-less across the country, with the Wellington Regional Council Area the only exception (although Wellington recorded very strong growth in Q1). This provides further evidence that the recovery in domestic demand is broadening.

- Retailers’ stock-to-sales ratio remained at very comfortable levels.

Commentary

- The first key GDP partial printed stronger than our expectations. Thus we continue to think that overall economic activity grew by around 1.0% qoq in Q2, if not marginally stronger (we find it easy to justify estimates as high as 1.3% qoq) .

- As we have argued for some time, household spending was always likely to benefit from a combination of robust consumer confidence, strong growth in employment, rising wage settlements, rapid growth in farm incomes and a gradual recovery in the housing market.

- The rise in June was stronger than credit card billings had suggested and provides a good base for another 1% qoq increase in volumes in Q3.

- As we have noted before, the RBNZ faces a dilemma as it weighs up the evidence in advance of its next review of monetary policy settings on 15 August.

- On the one hand, the domestic economy shows unmistakable signs of strengthening from a starting point of little excess capacity (indeed, labour market indicators suggest the economy is operating beyond its sustainable capacity, and this has begun to be reflected in higher wage settlements). We think that the RBNZ’s concerns about the level of momentum in the economy – raised by the weak Q1 GDP result – have been convincingly dismissed.

- On the other hand, aside from in Australia, global data remains very mixed and the forecast recovery remains just that – a forecast. This poses potential downside risks to economic activity and inflation at some point in the future.

- On balance, we continue to think that the RBNZ will give greater weight to the concrete evidence from strong domestic data and the consequent inflation risks, and therefore refrain from easing further on 15 August. With two further opportunities left this year to shift rates downward if needed, we see little imperative to ease policy at this point.

- We think that the chance of a further 25bps cut on 15 August is no higher than 25% and that probability may well be reduce further tomorrow if, as we expect, HLFS data corroborate the strong Q2 labour market outcome suggested by last week’s Quarterly Employment Survey.

- We continue to think that the next move in interest rate settings will be a hike, most likely at the time of the March 2002 Monetary Policy Statement.


Retail Trade Summary

Nom.
Sales
qoq%

yoy% Real Sales qoq% yoy% Retail
Deflator
qoq%

Q4 99 1.5 6.6 1.0 5.7 0.5
Q1 00 0.9 6.1 0.1 4.5 0.8
Q2 00 1.2 6.4 0.6 4.1 0.6
Q3 00 1.9 5.6 0.0 1.6 1.9
Q4 00 0.9 5.0 -0.4 0.2 1.3
Q1 01 1.9 6.0 1.5 1.7 0.3
Q2 01 2.3 7.2 1.3 2.4 1.0


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