Consumer spending bottoms out

Consumer spending might have finally found a bottom in the June quarter, after sinking a cumulative 6.7 per cent in real terms over the previous 18 months.

Retail sales were up 0.4 per cent on March, when adjusted for price changes and seasonal effects, Statistics New Zealand said, and up 1.1 per cent in dollar terms. Excluding the automotive sector, the increases were 0.2 and 1.1 per cent respectively.

"The recent labour market statistics suggest that employees are sharing the burden of the economic downturn, with reduced average hours mitigating the extent of job layoffs," ASB economist Jane Turner said.

"With fewer people losing jobs than otherwise expected, households have reason to feel slightly more confident. There is increasing confidence that the economy is past the worst and close to a turning point."

Nonetheless, the recovery was likely to remain muted, she said.

UBS economist Robin Clements also pointed to headwinds likely to keep any recovery in consumer spending modest.

"The tax cuts that boosted the June quarter won't benefit the September quarter, unemployment is still rising, wage inflation is falling and households are still carrying excessive levels of debt which need to be worked off."

Clements said the retail data would reinforce expectations overall economic activity in the June quarter contracted less than the March quarter's 1 per cent and that it was likely to be the last quarter of recession.

In the car yards, where buyers have been scarce for a couple of years, sales rose 3 per cent in dollar terms.

Just over half of the 24 store-types recorded an increase in real sales, led by appliance retailers (up 3.1 per cent), gas stations (up 2.8 per cent) and supermarkets and grocery stores (up 0.9 per cent).

Westpac economist Doug Steel said the ratio of stocks to sales was at record lows and with sales now turning up, and expectations of more growth ahead, a strong inventory cycle was likely. "This will promote activity in the manufacturing and distribution sectors over coming quarters," he said