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Deutsche Bank - NZ: Retail Sales - August 1999

Deutsche Bank - NZ: Retail Sales - August 1999

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

Key Points

Retail sales (nominal, s.a.) rose by 1.3% mom during August, following a fall of 0.2% July. That volatility is largely related to uneven trading day patterns. The monthly trend measure rose by 0.4%.

Retail sales were 6.1% higher than in August 1998, with the deflator estimated to account for only 1.0% of that. Motor vehicle retailing and services contributed around half of the 1.3% monthly increase (with recent petrol price increases accounting for a only a relatively small proportion). However, when removing the volatility that is present even in the seasonal adjusted data, both the automotive sector and the rest of the retail sector recorded trend growth of 0.4% in August.

The August data was significantly above average market expectations of a zero increase.

Retail::::::::::Seasonally::::::::::::::::::::::::: Trend
Sales:::::::::: Adjusted::::::::::::::::::::::::::::::Sales
::::::::::::::: ($m)::::: mom. %::::: Ann. %::::: mom. %

Feb-99:::::::::: 3,321.1::::: 0.5::::: 2.5::::: 0.3

Mar-99:::::::::: 3,383.8::::: 1.9::::: 5.0::::: 0.2

Apr-99:::::::::: 3,355.6:::::-0.8::::: 3.7::::: 0.3

May-99:::::::::: 3,300.4:::::-1.6::::: 4.2::::: 0.4

Jun-99:::::::::: 3,398.5::::: 3.0::::: 5.1::::: 0.5

Jul-99:::::::::: 3,390.2:::::-0.2::::: 3.9::::: 0.5

Aug-99:::::::::: 3,432.9::::: 1.3::::: 6.3::::: 0.4

Source: DB Global Markets Research, SNZ

Comment The sectoral breakdown of the underlying sales trend suggests that recent household spending patterns have been broadly based. That is a change from the June quarter when motor vehicle sales and servicing outgrew the rest of the retail sector. Recent spending patterns are entirely consistent with consumer confidence, which has adjusted from inflated levels earlier this year.

Looking ahead, a flat September month, or even a small downward correction, would still generate nominal sales growth of 1.5-2.0%, suggesting a volume increase of 1.0-1.5%. That, in turn, would imply a significant rebound in consumption growth from the June quarter. Today's outturn is consistent with our view that the -0.3% result for June quarter GDP was not a fair reflection of the underlying state of the economy, which suggests significant bounce- back potential for the September quarter.

Further data over the coming month are expected to confirm that point, with the Quarterly Survey of Business Opinion (19 October) and the September quarter Household Labour Force Survey (4 November) being the key releases. As a result, the case for a November RBNZ tightening will remain strong - particularly considering increasing evidence that not only the September quarter, but also the December and March quarters, will show high CPI increases as a result of the flow through of rising oil prices and the weak NZD. From a policy point of view, rising interest rates and a weak NZD would reflect real economy trends: continued buoyancy in the consumption and residential construction sectors, while the external sector has, so far, shown only weak signs of recovery.

ENDS

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