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Consumer Spending Hit A Wall In December

New Zealand: Consumer Spending Hit A Wall In December

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Consumer spending in New Zealand hit a wall in the final month of 2009 and hit it hard. Retail sales values were flat over the month (J.P. Morgan and consensus: 0.6%m/m), despite being propped up by a jump in automotive fuel retailing, lower interest rates, and solid net permanent migration flows (which recently hit a five year high). Core retail sales slumped 1.8%m/m, marking the largest decline on record. Twelve of the 20 core retailing industries recorded lower sales over the month, with the largest falls recorded in discretionary spending: department store sales (-4.7%), recreational goods retailing (-5.0%) and appliance retailing (-3.8%).

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The data even disappointed in real terms, despite significant discounting among retailers. Fourth quarter retail volumes grew a healthy 1.0%q/q, but fell short of expectations (J.P. Morgan: 1.4%, consensus: 1.3%). As highlighted by Statistics New Zealand today, retail sales volumes have now risen for three straight quarters, but have still only regained a quarter of the ground lost since the high in March 2007. The quarterly number is, of course, important for our 4Q GDP growth forecast, which is currently tracking at 0.7%q/q. RBNZ Governor Alan Bollard last week, when asked about GDP expectations, said that reasonable growth should be achieved in coming quarters. This, he said, will provide the signal as to whether or not the “economy is getting out of a fragile growth phase into a more assured one.”

With medium term inflation pressures likely to be a growing concern for the RBNZ, particularly given strong food prices gains and the forthcoming increase to the GST, there remains a good case for the RBNZ to embark on the next tightening cycle before official guidance suggests. That said, the retail sales numbers, combined with a string of other weak economic data, signals that the domestic economy may be losing momentum. Housing market data this morning, for example, showed that activity in the sector is easing. REINZ house prices fell for the second straight month in January, slipping 1.6%m/m, and house sales were down 1.1%oya. The median number of days to sell a house jumped to 43 from 33 in December. With housing market activity pulling back, and with credit growth still subdued, the RBNZ will become increasingly confident that another debt-fueled housing bubble will be avoided.

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