August retail sales up 1.1% from July, higher than expected (Update 2)

Seasonally adjusted retail sales rose 1.1% in August from July, which was more than most economists expected and suggests the economy is rebounding faster than the Reserve Bank is expecting. Core retail (which excludes the auto-related industries) sales rose 1.2% from July, figures released by Statistics New Zealand (Stats NZ) show. (Update 2 includes economist comment.) BNZ economists picked the 1.1% rise in total sales. ANZ National economists picked a 0.8% rise; Westpac 0.3%; and ASB 0.1%. Seasonally adjusted total retail sales were down 0.5% in July from the month before and static in June. Unadjusted figures (see chart below) show total retail sales still down 1.1% from a year ago, due to a slump in the motor vehicle industry. Unadjusted core retail sales were up 2.5% from August 2008, which was better than July's annual rise of 2.3%. Here are Stats NZ's comments on the figures:

The largest increases in core retailing were clothing and softgoods retailing "“ up 6.5 percent ($14 million), followed by hardware retailing "“ up 7.2 percent ($9 million). Decreases were comparatively small, with the largest being $3 million in supermarket and grocery stores. In the vehicle-related industries, three of the four showed an increase, led by automotive fuel retailing (up 1.9 percent or $10 million). The only industry to decrease was motor vehicle retailing (down 1.4 percent or $7 million). The total retail sales trend has been rising since February 2009, and has increased 1.4 percent since then, following a 13-month period of decline. The average rate of increase in the core retail trend had flattened to 0.1 percent per month between mid-2007 and early 2009, but since April has risen to 0.3 percent. The long-term average since the series started increasing in September 1995 is 0.4 percent per month. Clothing and softgoods retailing Clothing and softgoods retailing recorded the biggest increase in retail sales, up 6.5 percent ($14 million). This last increase coincided with what was described as an early start to spring, being the warmest August on record. Going back three months, winter also came early this year and clothing and softgoods sales increased substantially in May. The sales trend has been increasing since March 2009, up 6.7 percent since then. The current level exceeds the previous high recorded in December 2007. Hardware retailing Hardware retailing recorded the second-largest increase in core retail sales, with a 7.2 percent increase ($9 million) in August 2009. Although the sales trend is showing a 2.5 percent increase since March 2009, the level is still 7.1 percent lower than the peak recorded in September 2007. Automotive fuel retailing Automotive fuel retailing had the biggest increase of the four vehicle-related industries, and the second-biggest increase of all retail industries, up 1.9 percent or $10 million. Both petrol and diesel prices, which are not seasonally adjusted, went up slightly in August. The sales trend has been declining since July 2008, down 19.0 percent since then. Motor vehicle retailing Motor vehicle retailing had the largest decrease in retail sales in August 2009, down 1.4 percent ($7 million), and the only decrease in vehicle-related industries. This follows increases of 1.4 and 1.8 percent in June and July 2009, respectively. The sales trend has been increasing since March 2009, with the sales level up 2.9 percent since then. However, the level is still down 25.1 percent compared with the series' peak in May 2007. Regional estimates Sales were up in both the North Island (up 1.0 percent) and the South Island (up 2.0 percent) compared with July 2009. After a period of decline between February 2008 and February 2009, the trend for the North Island began rising, and is up 1.3 percent since February 2009. The South Island sales trend has declined since February 2009, down 1.1 percent since then.

Much of strength in August was attributed to a "˜technical' recovery following the past two months of decline. In addition, an unseasonably warm month appears to have boosted clothing sales, which is likely to unwind over the next few months (especially as the weather has now turned chilly again). Australian tourist spending at the ski slopes may also explain some of the growth. Nonetheless, the pick up over August does highlight the improved optimism on the consumer spending outlook. Consumer confidence has picked up firmly over recent months. In addition, retail spending volumes should also be supported by the current surge in net migration. We do expect a slow recovery in consumer demand to continue over the next year. The RBNZ is wary of a housing-led and "˜unsustainable' recovery. In August's retail trade report there was tentative evidence of housing-related spending improving, which the RBNZ may watch closely over the next few months. Last week's early hike by the RBA serves as a reminder that the RBNZ will not want to keep the OCR at emergency settings for too long if the housing market recovery gains momentum. At this stage the recovery in the housing market, and consumer spending, remains fairly muted and we do not expect the RBNZ will increase the OCR until June 2010.