December quarter retail sales down 1.5% from 2007, led by motor industry (Updated)

December quarter retail sales down 1.5% from 2007, led by motor industry (Updated)
Retail sales (unadjusted) in the December quarter of 2008 fell 1.5% from the same quarter a year before, led by declining sales in the motor vehicle industry, figures released by Statistics New Zealand (Stats NZ) show. (Updated to include economist reactions) The latest figures reaffirmed the possibility that the Reserve Bank of New Zealand will cut the Official Cash Rate to 2% by mid-2009, and has led economists to drop their forecasts for New Zealand's GDP figures in the December quarter and in 2009. The last time actual quarterly retail sales were negative, from the same quarter a year before, was in June 1998 (down 1.3%), Stats NZ Manager of business indicators Louise Holmes-Oliver told New Zealand's economy was in recession through mid-1998. Core retail sales (unadjusted, excluding motor industry) rose 2% from the December 2007 quarter. Inflation over the same period was 3.4%. Unadjusted figures show a 20% fall in motor vehicle retailing from the December 2007 quarter. Seasonally adjusted core retail sales in the December quarter of 2008 rose 0.6% from the September quarter, Stats NZ said, but with the motor vehicle industry factored in, there was a 1.1% decrease. This was the biggest quarterly fall since March 1997. Commenting on the figures, ASB Chief Economist Nick Tuffley said: "The figures suggest a Q4 GDP outcome around -0.5% qoq "“ a touch weaker than preceding figures though with less drag from consumers. We continue to expect the OCR will eventually drop to 2%. In our view the global news remains sobering enough to warrant a 100bp cut in March, though there is a risk the RBNZ does opt for a smaller cut at that meeting." Core retail sales in the December quarter totaled NZ$13.287 billion and motor vehicle industry sales totaled NZ$4.229 billion. "Thirteen of the 20 core retail industries recorded increased sales (seasonally adjusted) in the December 2008 quarter (from the September quarter), the biggest contributors were supermarket and grocery stores (up 1.3% or NZ$45 million) and other retailing (up 3.7% or NZ$26 million)," Government Statistician Geoff Bascand said. The 'other retailing' industry group includes antiques and used goods, garden supplies, flowers and jewellery retailing. "The biggest fall in the core retail industries in the December 2008 quarter was 3.1%, or NZ$30 million, in department stores," Bascand said. "The fall in automotive fuel retailing was due to price decreases. In motor vehicle retailing, prices were steady and the fall was due to decreased sales volumes. Sales in the other two vehicle-related industries, automotive electrical, smash repair and tyres, and automotive repair and services, were also down," he said. Stats NZ also publishes retail sales figures based on prices in the September 1995 quarter. This shows there was a 3.7% decline in total retail sales in the December quarter 2008 from the same quarter in 2007. This was the fourth consecutive quarter in which total sales fell from the same quarter a year before. "The weaker than expected result has prompted a further downgrade to our fourth quarter GDP growth forecast from (a contraction of) 0.5%q/q to a deeper contraction of 0.7%; this will mark four straight quarters of falling GDP," JP Morgan economist Helen Kevans said. "... (T)he outlook for 2009 is even worse. Our forecast calls for GDP growth to contract 1.0% in 2009. Weaker export demand (owing to the worsening outlook for New Zealand's key trading partners), lower commodity prices, negative wealth effects from falling asset prices, and weaker consumer and business sentiment mean that the economy will be running on empty for some time," Kevans said. ANZ economist Phillip Borkin said: "The performance of the labour market will now be the key driver for both the retail sector and housing market over 2009. Given the survey evidence and widespread anecdotes, it's hard to go past another leg of weakness." "In this environment, the bias will remain tilted towards monetary policy taking the Official Cash Rate to new lows, and a further downward adjustment in the currency. It is the latter channel that we expect will grow in attention over the year, and so far as retailing is concerned it will mean further pressure on margins and profitability," Borkin said.

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