Stats NZ says decreased volumes in hardware and vehicle retailing helped drive a fall in total retail sales in the March 2023 quarter

Retail sales by volume have dropped for the second consecutive quarter, according to Stats NZ.

The seasonally-adjusted 1.4% fall in volume of sales for the March quarter follows a 1.0% drop in the December quarter. 

Measuring the volumes of sales as against just the value removes the impact of inflation from sales data and therefore gives a clearer picture of levels of spending.

The latest figures would indicate a start of the slowing in spending that the Reserve Bank (RBNZ) is looking for as it attempts to take heat out of inflation, which was at an annual rate of 6.7% as of the March quarter.

ASB senior economist Kim Mundy said it appeared that "households are in the process of tightening their belts amid already soaring living costs and the prospect of even higher mortgage interest rates".

"However, some weather-related restocking from the floods and Cyclone Gabrielle may have also impacted on activity over the quarter."

Mundy said for the retail sector, contractionary RBNZ policy settings and the outlook of much higher interest rate payments for some households will remain a strong "headwind" to retail sector activity in 2023.

"We have been saying for a long time that the retail sector was going to face a very challenging time, and it appears that that time has arrived."

Westpac senior economist Satish Ranchhod said the latest sales data highlighted that financial pressures "are continuing to eat away at households’ purchasing power".

"That fall in the volume of goods sold was more pronounced than the 0.5% decline we had expected. Notably, the result was much weaker than other analysts expected, with most analysts actually expecting to see sales volumes rising," he said.

The "stark divergence" in how much cash households are spending and what they are actually receiving reinforces a trend that we’ve seen for well over a year now, Ranchhod said.

"In fact, over the past year, nominal retail spending levels have increased by 4.7%, while the amount of goods sold has fallen 4.1%." 

Ranchhod said the fact that nominal spending levels have held up in the face of mounting price pressures "is notable", pointing towards resilience in spending appetites.

"However, we expect that the pressure on households’ finances will become increasingly stark over the year ahead. Consumer prices are continuing to rise rapidly and increasing numbers of households are rolling on to higher fixed term mortgage rates. Those factors will be an increasing drag on spending levels going forward." 

In terms of the detail in the latest retail sales data, comparing the volumes sold on a seasonally adjusted basis between the December 2022 and March 2023 quarters, Stats NZ said nine of the 15 industries had lower seasonally adjusted sales volumes in the March 2023 quarter.

By industry, the largest movements were:

• hardware, building, and garden supplies – down 6.3%
• motor vehicle and parts retailing – down 2.8%
• liquor retailing – down 13%
• pharmaceutical and other store-based retailing – down 3.1%
• clothing, footwear, and personal accessories – up 3.8%.

Comparing the March quarter retail sales volumes with those for March 2022, revealed a 4.1% drop on the volumes from a year ago.

"Decreased volumes in hardware and vehicle retailing helped drive a fall in total retail sales in the March 2023 quarter, compared with the March 2022 quarter," Stats NZ's business financial statistics manager Melissa McKenzie said.

Stats NZ said some of the biggest changes in retail sales volumes between the March 2022 and March 2023 quarters were:

• hardware, building, and garden supplies – down 13%
• motor vehicles and parts – down 7.5%
• food and beverage services – up 14%
• accommodation – up 19%.