New Zealand retail sales slumped 1.2%m/m in March

New Zealand retail sales slumped 1.2%m/m in March

New Zealand retail sales unexpectedly slumped 1.2%m/m in March (JPMorgan -0.3%, consensus -0.4%) after falling a revised 0.6% (previously -0.7%) in February. Retail sales ex-autos were also down in March, falling 0.5% after rising 0.2% in the previous month.

For the March quarter, retail sales ex-inflation fell 1.2%q/q (JPMorgan -1.2%, consensus -0.2%), confirming our expectation that 1Q GDP will be weak. Our forecast currently calls for economic growth of 0.1%q/q in the March quarter and a contraction in the economy in the June quarter.

Record high interest rates, elevated petrol prices, a rapidly deteriorating housing market, and drought conditions in key dairy producing regions mean that consumer spending will remain weak near-term, particularly given that a number of domestic banks have started to pass on higher funding costs resulting from credit market tightening, even though the official cash rate (OCR) has remained steady since July. Furthermore, the labour market has started to loosen. Employment contracted in 1Q and growth in private sector labour costs slowed. With business confidence recently plunging, companies are likely to be even more reluctant to hire workers going forward.

Toward the end of the year, though, consumer spending should start showing some signs of recovery. There is likely to be personal tax relief announced in the May 22 Budget and our forecast calls for the RBNZ to start easing monetary policy in the December quarter (at the October OCR review), when we expect a 50bp cut to the OCR. Also, farmers, in particular, will enjoy a rise in income owing to the positive terms of trade, mainly via high dairy prices.

* Total retail sales were down 1.2%m/m in March, compared to a fall of 0.6% in February.

* Retail sales ex-inflation slumped 1.2%q/q in the March quarter, after rising 0.3% in 4Q.

* The core retailing group, which excludes the four vehicle-related industries, fell 0.5%m/m in March.

* Motor vehicle sales again accounted for a large part of the fall in total retail sales in March, down 5.3%m/m.

* Supermarket and grocery stores sales fell 1.0%m/m in March.

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