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Deutsche Bank - NZ Retail Sales - July 1999

Economic Note (New Zealand)
Deutsche Bank
NZ Retail Sales - July 1999

Key Points

Retail sales (nominal, s.a.) fell by 0.2% during the month of July, following an increase of 2.9% mom in June. Smoothing through that volatility, the monthly trend measure rose by 0.3%. On an annual basis, seasonally adjusted retail sales were 3.9% higher than in the month of July 1998.

The decline in sales over July was broadly based, with nine of the fifteen storetypes recording falls - the largest dollar value contribution to the decline came from the motor vehicle retailing storetype.

The seasonally adjusted decline for the month was only marginally above average market expectations for a fall of 0.3% mom. However, taking account of the trading day effect, Statistics NZ estimates that seasonally adjusted sales would have increased by around 0.6% in July.

Retail----- Seasonally------------------------- Trend

---------------Adjusted------------------------------ Sales

---------------($m)---------- mom.%----- Ann.%----- mom.

Jan-99----- 3,304.6----- -0.5----- 1.9----------0.4

Feb-99----- 3,321.6----- 0.5----- 2.2----------0.3

Mar-99----- 3,384.8----- 1.9----- 4.8----------0.2

Apr-99----- 3,356.0----- -0.8----- 3.9----------0.3

May-99----- 3,300.1----- -1.7----- 3.9----------0.3

Jun-99----- 3,394.7----- 2.9----- 4.9----------0.3

Jul-99----- 3,386.8----- -0.2----- 3.9----------0.3

Comment

Despite the modest seasonally adjusted decline in sales for the month, the less volatile trend measure recorded its fifteenth consecutive monthly increase. Moreover, recent retail sales outturns indicate some stabilisation in activity, following more robust growth at the beginning of the year. This profile of retail activity parallels developments in business and consumer confidence, which have eased back from excessive optimism earlier in the year.

Overall, while these data suggest some consolidation in retail sales, other elements of consumer demand have remained reasonably robust. In particular, growth in consumption goods imports remains buoyant, while low interest rates continue to stimulate high rates of growth in housing turnover and residential investment. Whereas the high level of household debt is likely to place some constraint on household spending going forward, we expect relatively low debt servicing costs on the back of historically low interest rates will provide some offset.

Nevertheless, the decline in seasonally adjusted sales in July, together with a softening in a number of other activity and confidence indicators may lead to further suggestions that NZ's economic growth has continued to soften. While the market consensus for second quarter GDP has yet to be finalised, a number of commentators - including the RBNZ - have recently revised down their quarterly projections from around 0.7% qoq to 0.5% qoq. In contrast, our analysis of partial GDP indicators suggests growth of around 0.6-0.7% qoq remains plausible

These data are likely to have been interpreted as a "neutral" by the RBNZ with regard to determining the potential timing of an OCR tightening. While the recent weakness in the TWI and the potential for a stronger GDP outturn is likely to increase the probability of the RBNZ raising the OCR at their September review, our central scenario remains for a 50 bp rise at the November MPS

This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com

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ENDS

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