NZ Retail Trade: A touch softer, but still respectable - ANZ

Philip Borkin, Senior Economist at ANZ, notes that the New Zealand’s retail sales volumes increased 0.8% q/q in Q1, a touch softer than consensus expectations (mkt: 1.0% q/q).

Key Quotes

“That said, the underlying details were still respectable, with core sales volumes (stripping out petrol and motor vehicle retailing) up 1.0% q/q, and gains relatively broad-based across industries.

Compositionally, 11 of 15 retail industries recorded higher sales volumes. Electrical and electronic goods made the largest contribution to the increase (rising 3.8% q/q), continuing a run of decent growth. Nonstore and commission-based spending (+10.2% q/q) also made a large contribution, with this industry continuing to show strong growth rates. In fact, in trend terms, its spending is running at a 7.5% quarterly pace.

Auckland spending continued to accelerate. On a nominal basis, Auckland sales growth rose 1.8% q/q, with annual growth hitting 9.0% y/y. It was far more mixed for other regions, with spending falling in the Waikato, Wellington and Canterbury. In two out of three regions, this drop likely partly reflects spill-overs from dairy sector strains.

Retail inflation remains benign. While there are some hints that retail deflationary pressures are waning (electrical goods prices were flat after falling since 2009, and accommodation prices continue to rise strongly), overall price pressures remain benign, with the total and core implied deflators at -0.2% q/q and +0.2% q/q respectively.

A number of pillars of support for consumer spending remain. Population growth is strong, the tourism sector is booming, the labour market continues to recover, and the effective mortgage rate is still falling. We suspect an element of household restraint will persist, particularly in rural regions, but the above forces should still pave the way for respectable consumer spending growth going forward. That said, household debt levels will become a constraint at some point.

Despite the softer headline result today, we do not see it as enough to alter our early expectations for Q1 GDP, which still sit at 0.7% q/q.”