NZ retail sales growth consolidated in September

NZ retail sales growth consolidated in September

• Retail sales ticked up 0.2%m/m in September
• Ex-auto sales were weaker
• Volumes flat over the quarter, but no change to 3Q GDP forecast

Retail sales values in New Zealand increased a modest 0.2%m/m in September (J.P. Morgan -0.4%, Consensus 0.4%), which marked a consolidation in sales growth after the 1.1%m/m bounce in August. While underlying sales appeared slightly weaker than the headline figure, with ex-auto sales flat, this figure was likely depressed by discounting from retailers and softer food prices. Over the quarter however, prices generally rose, which helped push retail sales values up by 0.5%, the second consecutive quarter of growth after a year of declines.

Over the month of September, sales mostly were flat - the majority of industries’ sales (13 of 20) changed by less than NZ$3m. On the upside, supermarket and grocery store sales were up 1.1%, and appliances continued a strong quarter of growth, up 3.6%, likely due to increased affordability from the stronger currency. Department store sales, though, were weak, down 3.2%, as was fresh produce retailing (down 6.9%), the latter probably affected by the 0.7% fall in food prices over September.

Over the third quarter, retail volumes essentially were flat (up 0.1%), slightly better than our forecast (J.P. Morgan -0.2%q/q). The difference is insufficient to alter the outlook for private consumption, so our forecast for 3Q GDP remains unchanged at 0.5%q/q. We expect consumption growth to strengthen in the quarters ahead due to positive migration flows, the recent pickup in housing market activity, and a rally in consumer confidence (chart).

Since the economy exited recession in 2Q, the data emerging from New Zealand has strengthened significantly, increasing the chances of earlier policy tightening from the RBNZ. While officials appear concerned by the potentially speedy transition back towards old habits of debt-fuelled consumption, and also by financial markets’ views on the economy as expressed through the higher currency, we don’t think the central bank’s collective hand will be forced just yet. Officials do not want to risk nipping the recovery in the bud, and will continue to hose down bullish expectations on the economy and caution against irresponsible consumption through their commentary, rather than through monetary tightening. Our call is for the first rate hike to come in July 2010 (50bp).

Full release with charts: Retail_121109.pdf

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