ASB sees retail sales growth broader than just pre-GST hike spending

ASB sees retail sales growth broader than just pre-GST hike spending

Retail sales rose 1.3% in the June quarter, on a seasonally adjusted basis, the biggest rise since the March 2007 quarter.

(Update adds comments from JP Morgan economist Ben Jarman).

Statistics New Zealand said overall sales were boosted by a 4% rise in motor vehicle retailing and a 3.4% lift in appliance sales.

It was the fifth successive quarterly increase in sales volumes and the biggest since March 2007, Statistics New Zealand business statistics manager Louise Holmes-Oliver said.

Core retail, which excludes the four vehicle-related industries, rose 0.9%.

ASB economist Christina Leung noted at 1.3%, the quarterly sales volumes were well ahead of economists' expectaions for a rise of just 0.3%. June month 0.9% sales growth also exceeded economists' expectations which were for a rise of 0.5%. She said the broad nature of the rise suggested a "genuine recovery" in household discretionary spending, beyond the bringing forward of sales ahead of  October's GST hike.

"The bounce-back in retail sales for the June month suggests some willingness on the part of households to spend again," said Leung.

JP Morgan Chase Bank economist Ben Jarman wasn’t so upbeat. He said there was probably a nagging feeling that the party can’t last, noting the impending GST rise means consumers will want to squeeze in purchases of bigger ticket items before prices rise.

“Sales therefore will continue to be strong leading into October, after which volumes will likely suffer a significant hangover, given a vacuum of demand and as households consolidate spending patterns,” Jarman said.

Seasonally adjusted total retail sales values rose 0.5%, or by NZ$83 million, with volume increases partly offset by price falls. Holmes-Oliver said motor vehicle retailing also led the increase in sales values, rising 3.6 % or NZ$62 million. Automotive fuel retailing recorded the largest fall, down 2.4% or NZ$40 million.

Supermarket and grocery stores, up 0.9% or NZ$36 million, and accommodation, up 4.8% or NZ$32 million, were the two core retail industries contributing most to the 0.4%, or NZ$51 million, increase in core retail sales values.

In the June 2010 quarter compared with the June 2009 quarter, the volume of actual retail sales was NZ$13.4 billion, a rise of 2.8%. The value of actual retail sales was NZ$16.1 billion, a 2.7% increase.

For the month of June, seasonally adjusted total retail sales values increased 0.9%, or by NZ$52 million, from May.

Core retail rose 1.5%, or by NZ$61 million, in June with 14 of the 20 core retail industries recording increases.

However, Leung noted discounting seems to have played a role in encouraging sales, especially for appliances. Vehicle sales continued to recover from  very weak levels. Leung noted some of this might reflect people bringing forward the purchase of big-ticket items ahead of the October GST increase to 15% from 12.5%.

"Nonetheless, the relatively broad-based increase in sales, particularly the decent increase in clothing and footwear sales volumes, suggests a genuine recovery in discretionary spending on the part of households, beyond the bringing forward of sales in anticipation of the GST increase in October," said Leung.

"With signs that households are becoming more willing to spend the recovery looks to be becoming more broad-based," Leung added.

"Certainly there is nothing in today's result to suggest that a pause in the Official Cash Rate (OCR) is warranted from the Reserve Bank for the September meeting, especially since we see the current level of the OCR as still well below the neutral rate."

"Nonetheless, some uncertainties remain on the growth outlook, thus we expect the Reserve Bank will pause in October and resume with OCR increases early next year until the OCR reaches 4.50%."

Meanwhile, Jarman said the quarterly figure was very supportive of Gross Domestic Profit growth, but the more meaningful question was how the ‘ex-GST effect’ numbers would have looked.

“After the artificial boost from precautionary spending fades away, the recovery in New Zealand will be at a difficult juncture,” said Jarman.

“Policymakers have been open in their desire that households realign their spending patterns and consolidate balance sheets, which have historically been too leveraged to housing debt.”

He said the concern was the consumer must take the back seat in driving growth at a time when the risks to trading partner growth, and therefore New Zealand’s export outlook, appear to be mounting.

“For the Reserve Bank, however, this period is too far down the path to influence immediate policy decisions: we expect two further rate hikes this year, given that the cash rate is still at a highly stimulatory level.”

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6 Comments

Hey Walter : Try the Mount Hutt approach to retail : Lock down your facility when 1000+ are gathered in ; then begin a TradeMe style auction of the dwindling comestibles resource ! Gummies for $ 100 per bag .........Yahhhhhhhhhhhh

RT

I am sure that the July Retail sales will be even larger than June's reading. because the NZD had better purchasing power , but at the current NZD levels it will surely dim the Retail Sector once more in the August reading...  NZ is the only country who is expected to hike rates in the next Reserve  meeting.

Of course retail sales are up! Everything is at minimum 50% OFF!!! Doh!

Everything is relative but good to have some positive news. Yes shops are having sales, but the difference with 18 months ago is that the shops are open. One road in Newmarket had 5 shops for lease at the beginning of 2009 and now they are all occupied, albeit with sales on!

UGG ! You got through the registration process .. .. .. And who couldn't envisage that happening , Bernard ? UGG !

You are well informed ! I believe  that on September 12 Bernard is going to turn off all non-registered commentators ... .... By doing a streak across their computer screens ............... UGGGGGGGGGGGGGG !

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