Core retail sales fall for third month running as consumers snap wallets shut

Seasonally adjusted retail sales rose 0.4% - or by NZ$24 million - in May, Statistics New Zealand said, boosted by car sales. But core retail sales fell 0.2% in the month, much more than economists had expected and extending the core retail sales fall to the fourth month in the last six months.

Spending growth has ground to a halt in tandem with the housing market as bank lending growth to households has slowed to 2.5% in the last two years from almost 10%. The May figures also reveal the first ever fall - in Statistics New Zealand's series - in supermarket and grocery store sales, which fell 0.1%, or by NZ$1 million, compared to May 2009. Supermarket and grocery store sales have previously increased at an average rate of 5.8% versus the same month of the previous year.

(Updates add further detail, comments from economists, supermarket sales fall).

At 0.4%, seasonally adjusted sales growth was slightly below the consensus of economists' expectations for growth of 0.5%. The May rise  follows a 0.3%, or NZ$18 million, decrease in April.

The increase was headed by a 2.3%, or NZ$33 million, lift in vehicle-related sales.

Core retail sales actually fell by 0.2%, or NZ$10 million led by falls in the hospitality industries, - accommodation, and cafes and restaurants. Half of the 20 core retailing industries recorded lower sales and, excluding vehicle related sales, actual May core retail sales were 0.6% lower than in May 2009.

In the vehicle area, motor vehicle retailing rose 7.5%, or NZ$43 million, while automotive fuel retailing slipped 1.9%, or NZ$11 million.

Government Statistician Geoff Bascand said this was only the fourth time a decrease has been recorded in core retail sales, compared with the same month of the previous year, since the series began in 1995. The previous falls occurred in February 2009, March 2008, and February 1997.

"To put this month’s fall in context, the long-term average change for core retailing, compared with the same month of the previous year, is an increase of 4.8%," Bascand said.

Statistics New Zealand noted that the trend for motor vehicle retailing has been on the rise for more than  a year, and is now up 13.1% - NZ$68 million - since a turning point in March 2009. However, the current level of the trend is still 17.1%, or NZ$122 million, down from its historic high in June 2007. See Statistics New Zealand's full commentary here.

In actual terms, total retail sales rose 1.9%, or by NZ$98 million, in May 2010 from May 2009. This was led by motor vehicle retailing, up 16.8% or NZ$88 million, and automotive fuel retailing, up 5.8% or NZ$30 million.

The monthly decrease in core retail sales was led by  a 7.7%, or NZ$14 million, fall in recreational goods retailing, an 11.6%, or NZ$12 million, drop in liquor retailing and a 2.8%, or NZ$9 million slip at cafes and restaurants. The only core retailing industry to record an increase of more than NZ$10 million was accommodation, up 8.3% or NZ$14 million.

ASB economist Christina Leung said the may figures continued to point to a gradual recovery in retail spending. She noted a 3.9% rise in appliance sales suggested households might be starting to bring forward the purchase of big-ticket items ahead of the October 1 GST increase.

JP Morgan Chase Bank economist Helen Kevans noted that in 1986, when GST was introduced, and again in 1989 when it was lifted by 2.5% percentage points, there was a significant “bring-forward” of spending by consumers in the months immediately before the rise in the consumption tax. This was then followed by a fall.

"For retailers, however, this creates the difficult challenge of managing inventory around volatile fluctuations in demand," said Kevans.

"That all said, aside from the temporary strength we expect in consumer spending near term, consumption thereafter will likely be subdued as households undertake a period of consolidation."


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FYI I've added that core retail sales fell 0.2% in May, meaning there have been four monthly falls in the last 6 months. Trend core retail sales have been flat since November last year.
This is the face of deleveraging by households, who still have a debt to disposable income ratio nationally of almost 160%, up from 100% a decade ago.
Here's what has been happening with bank lending to households. Lending growth has slumped to 2.5% from almost 10% two years ago.
New Zealand is finally waking up to life without regular large increases in debt. The last 10 years were a mirage of growth and spending fueled by debt.
Guess what happens when the debt stops growing? Spending growth slows to virtually nothing. Retailers are pinched. Small businesses really struggle. The economy stalls. This is all because we are still (largely) a housing market with bits tacked on rather than a sustainable economy.
And I think it will get worse. I think the banks are preparing to slow that 2.5% lending growth even more as they get ready to increase their core funding to 75% from the current 65% and pass on higher funding costs in the wake of the European Financial Crisis (which isn't over yet)
What would retail spending look like with no lending growth?

Andy Rogers, there should be plenty more cheap wine where that came from and you might even be able to get a vineyard thrown in too -