Christmas sales worse than expected

Retail sales over the crucial Christmas quarter and month were worse than expected, Statistics New Zealand said today.

Inflation and seasonally adjusted sales in the December quarter fell 0.7 per cent from the September quarter. Without inflation adjusting, sales were down 0.4 per cent - the first quarterly fall since June 1998.

However, when car sales were removed from the data, sales were up 1.1 per cent.

The inflation and seasonally adjusted sales for the year showed sales were up 3.1 per cent, and a healthier 5.6 per cent when car sales are removed.

Economists had forecast a 0.2 per cent rise.

Seasonally adjusted sales in the month of December were unchanged against forecasts of a 0.3 per cent rise. Excluding car sales, sales were up 0.4 per cent. Actual December month sales were 4.7 per cent ahead of last December and 5.8 per cent when excluding car sales.

The data is yet another indication that the economy has slowed. A negative contribution from retail sales is a strong pointer that the economy went backwards in the December quarter and that it could be on the brink of recession if that is repeated in he current quarter.

Fourteen of the 24 retail industries posted increases in the December quarter.

SNZ said car sales showed increased volatility in the second half of 2005, falling 8.7 per cent. Car sales makes up more than one eighth of retail sales, so has a significant impact.

The largest increase in seasonally adjusted but not inflation adjusted sales, came from supermarkets and grocery stores (up 1.5 per cent), cafes and restaurants (up 4.9 per cent), bars and clubs (4.8 per cent), appliances (up 4.2 per cent) and clothing and softgoods stores (up 6.4 per cent).

Taking inflation into account, car sales posted the biggest decrease while appliance retailing had the biggest increase. Prices for appliances fell for the 13th consecutive quarter.

Wellington was the only major North Island centre to post an increase in sales while the two main South Island centres also had positive sales growth.

Despite the quarterly fall, SNZ said its trend series showed retail sales continuing to grow, but the rate of growth had slowed in the second half of 2005, influenced by a big drop in car sales.

Chief strategist at TD Securities Stephen Koukoulas told Reuters the data was more evidence the economy had run into a brick wall.

"It's no surprise the consumer is under a lot of pressure with interest rates up at 7.25 per cent. The fall in real sales blows a big hole in GDP (gross domestic product) for the quarter," he said.

He said GDP could be negative for the fourth quarter, and the risks of a hard landing for the economy were very real.

Goldman Sachs JB Were economist Shamubeel Eaqub also said the data added weight to the belief that fourth quarter GDP could be negative, forecasting a -0.2 per cent quarterly movement.

The New Zealand dollar softened on the news, falling to US67.47c shortly after the announcement, from US67.90c at the start of the local session.

- NZPA