Total October retail sales drop 2.5% led by weaker sales of cars and vehicle parts

Total seasonally adjusted retail sales fell 2.5%, or by NZ$137 million, in October from September, Statistics New Zealand says.

The fall in total sales follows a 1.7% increase in September.

Core retail sales, which exclude the motor vehicle-related industries, fell 1.6%, or by NZ$71 million, reversing a 1.7%, or NZ$72 million, rise in September.

ASB economists expected a fall in total sales of 0.6% and 1% drop in core sales. The New Zealand dollar initially dropped to US74.70 cents from US75.50c after the Statistics New Zealand release, before rising back to US75.10c.

 Ten of the 15 industries surveyed by Statistics New Zealand fell, four by more than NZ$20 million. The biggest fall came from motor vehicles and parts, down 12.6%, or NZ$85 million. Other sectors where sales fell included furniture, floor coverings, houseware, and textiles, down 27.8% (NZ$47 million), electrical and electronic goods – down 15.2% (NZ$34 million), and pharmaceutical and other store-based retailing down 7.5% (NZ$28 million).

Supermarket and grocery store sales provided the biggest rise, up 4.2%, or NZ$58 million. And fuel sales climbed 3.7%, or NZ$19 million.

Statistics New Zealand's Retail Trade Survey excludes GST. This month's survey is the first time the Australian and New Zealand Standard Industrial Classification has been implemented.

ASB economist Chirstina Leung said the October fall showed that the strength in September sales was due to households bringing forward the purchase of major household items in anticipation of the October 1 increase in GST to 15% from 12.5%.

"In particular, there were sharp declines in the sales in the areas of furniture, floor coverings and houseware, electronics and motor vehicle and parts in the October month. These declines unwound the robust increase in sales in these areas in the previous month," Leung said.

She noted the 4.9% rise in fuel sales was almost in line with the 4.5% increase in petrol prices over the month.

"We expect some weakness in retail sales to linger in November, given households look to have brought forward major purchases prior to the GST increase. Beyond that, we expect the gradual recovery in retail spending to resume, underpinned by improved consumer confidence as the labour market continues to recover," Leung said.

She added that weakness in the October data reflected volatility in sales over recent months with households bringing forward purchases of big-ticket items ahead of the GST increase.

"Beyond this volatility, the underlying trend remains one of a gradual recovery in retail spending. Nonetheless, given the gradual nature of the recovery and with pockets of weakness lingering in the household sector we expect the Reserve Bank will remain cautious and leave the Official Cash Rate on hold until the June meeting next year."

(Update adds ASB economist's views).