Retail sales begin to thaw

Monday May 14, 2012

The latest retail trade stats are somewhat of a warm relief to the recent chill weather. Seasonally adjusted sales rose by1.1 percent in the last month. But the cool conditions may have contributed to the pick-up in retail sales. Clothing and softgoods sales in August had the largest increase ($14 million, 6.6 percent) across the 24 industries that StatsNZ monitors.

These statistics are being taken as another important indicator by the markets that the worst of the recession in New Zealand is over. The impact on the currency was immediate. Following StatsNZ’s 10:45am release, the trade weighted currency index (TWI) immediately rose against all of our major trading partners’ currencies. It surged up, climbing by 0.5 points to 66.54 by midday.

At an industry level, the August statistics show slight falls in supermarket and grocery stores, other food retailing, appliance and recreational goods retailing. However, given the size of the changes were between -0.2 percent and -1.5 percent, it is likely that these contractions were substantially driven by lower retail inflation (or even deflation) rather than dramatic cut backs in sales volumes. We will have to wait for the quarterly statistics to pull apart the influence of price changes from real volume changes.

There remain seemingly conflicting messages in the statistics. While the seasonally adjusted figures look positive, actual sales fell by 2.1 percent in the month of August and they were 1 percent lower than the same month a year ago. The negative aspect is primarily driven by the automotive sector. Core retail sales were $94 million higher in August 2009 than they were in 2008, while automotive sales were $151 million lower.

In addition, the overall level of growth remains modest. The 1.1 percent monthly increase in seasonally adjusted sales is mild relative to the medium-term average. But again, much of this was due to weakness in the automotive sector. The current positive net migration will help to stimulate demand and add some heat to the retail sales sector.

This suggests that while perhaps we shouldn’t be negative, neither should we overstate the growth in the retail sector nor neglect the underlying patterns in the core and automotive sub-sectors. The picture of a fragile recovery continues, and much of this picture seems to be coloured with sentiment. At the moment, it is a rosy, if somewhat chilblained, pink.