Core retail sales fall 0.6% in August, as hardware, appliance retailing falls away

Disappointing retail sales figures are reinforcing economist expectations that the Reserve Bank will hold off lifting the Official Cash Rate until March next year, as households remain cautious about spending.

Big falls in appliance and hardware retailing meant core retail sales fell by a seasonally adjusted 0.6% in August from July, while stronger car and fuel sales kept the overall figure unchanged, Statistics New Zealand said today.

Overall retail sales, which includes the vehicle-related industry, were virtually unchanged over the month, falling by less than 0.1%, or NZ$2 million, to NZ$5.561 billion Stats NZ said.

This was below market expectations of a 0.3-0.4% rise.

ASB economist Christina Leung said although more recent electronic card figures for September suggested the declines would largely reverse next month, the disappointing August figures reinforced expectations of the RBNZ holding the OCR until March.

"The RBNZ highlighted the weakness in household spending in its September Monetary Policy Statement, and today's data certainly indicates households remain cautious in regards to spending," Leung said. 

"While today's result points to little sign of households bringing forward purchases of major items ahead of the GST increase in October, more recent September electronic card transactions data shows a robust increase in durables spending," she said

Hardware and appliance retailing were among the hardest hit in August, down 5.8% (NZ$7 million) and 2.2% (NZ$5 million), respectively, Stats NZ said.

The largest overall increases were motor vehicle retailing, up 2.3%, or NZ$14 million; and automotive fuel retailing, up 2.1% or NZ$11 million.

Unadjusted figures show retail sales rose 2.3% in August from the same month a year ago, although core retail sales were only up 0.1% over that period.

Figures released earlier this week showed retail spending with electronic cards rose 1.5% in September from August, ahead of the GST increase on October 1. Core retail spending with electronic cards rose 1.4%.

Economic analysts said the increase in September was more modest than that seen the last time GST was raised in 1989.

Here is the reaction from ASB economist Christina Leung:

Today's result reflects continued caution amongst households in regards to spending. Driving the weaker than expected result were declines in hardware and appliance spending, indicating no sign of a pre-GST spend-up in August. The weakness in these areas is also likely a reflection of continued subdued activity in the housing market. However, more recent electronic card transactions data shows a robust increase in spending on durables in September, suggesting these declines will largely reverse out in the following month.

Spending in other areas were also subdued, particularly in regards to discretionary spending.  In particular, spending in department stores and bars and clubs continued to decline.

Offsetting some of these declines was an increase in fuel and car purchases, despite petrol prices and vehicle registrations being broadly flat over August. Car sales look to be slowly recovering from the very weak levels in 2009, and more recent vehicle registrations data suggests this will continue in the coming months.

Implications

The RBNZ highlighted the weakness in household spending in its September Monetary Policy Statement, and today's data certainly indicates households remain cautious in regards to spending. While today's result points to little sign of households bringing forward purchases of major items ahead of the GST increase in October, more recent September electronic card transactions data shows a robust increase in durables spending. This suggests declines recorded in some of the components will largely reverse out in the following month. Nonetheless, the weakness in August retail sales reinforces our expectations the RBNZ will hold off increasing the OCR until the March 2011 meeting.

(Update includes ASB reaction.)