Core retail sales rose 0.3% in February, weaker than expected (Update 1)

Core retail sales, which exclude petrol and automotive sales, rose 0.3% in seasonally adjusted terms in February from January, while total retail sales rose 0.8%, Statistics NZ said. (Update 1 includes ASB comment on the soft figures) Core spending growth was less than economists had forecast and suggests consumers are being more cautious during this recovery as they see a softening housing market and are trying to reduce debt. Here is the full Statistics NZ release below:

Seasonally adjusted total retail sales rose 0.8 percent ($42 million) in January 2010, Statistics New Zealand said today. “The increase in sales was led by the vehicle-related industries, with a lesser rise in core retailing,” business statistics manager Louise Holmes-Oliver said. Leading the increase were automotive fuel retailing (up 2.8 percent or $15 million) and motor vehicle retailing (up 2.0 percent or $12 million). Core retail sales (which exclude the four vehicle-related industries) rose 0.3 percent ($12 million), following a 2.0 percent fall in December 2009. “The increase in core retailing was led by recreational goods retailing and accommodation; these were the only two industries in core retailing with movements exceeding $5 million,” Mrs Holmes-Oliver added. The total retail sales trend has continued to rise, and has increased 3.3 percent since February 2009. Having been mostly flat between mid-2007 and early 2009, the core retail sales trend strengthened slightly in mid-2009. However, the sales trend has eased again since then, and is now flat. Seasonally adjusted sales were up in the North Island (up 1.5 percent) and flat in the South Island (down just 0.2 percent). The only region with a sales decrease was Canterbury, down 0.9 percent. All regional trends have been rising at various rates, apart from Canterbury’s trend which has declined since October 2009.

Today's outturn continues to point to a very subdued recovery in consumer spending. While January total retail sales was higher than market expectations, core spending was softer. Of note is the downward revision to the already very weak result in the December month. There was a rebound in vehicle sales over December and January, in line with the improvement in vehicle registrations over this period. In addition, higher petrol prices drove increased fuel spending. Outside of the auto sector, core spending remains weak particularly in the areas of discretionary spending, with appliance and clothing sales languishing at low levels. In addition, spending on eating out continued to decline. January’s result is particularly soft when you take into account the downward revisions to spending in these groups in December month. Overall, it appears the improvement in consumer confidence in recent months has yet to flow through to household spending. Implications The recovery in consumer spending appears to be more gradual than we had been expecting. More recent data suggest this trend will continue over the coming months, with electronic card transactions still weak and consumer confidence dipping in February. Furthermore, the improvement in vehicle registrations (an indicator of vehicle sales) looks to have plateaued. Today's data adds to the recent slew of data which has removed the urgency for the RBNZ to commence its tightening cycle, and we continue to expect the RBNZ to increase the OCR by 25bp in June.