Retailers count cost as consumers tighten hold on wallets

Core retail sales were down in December by 1.1 percent. Photo / Steven McNicholl

A grim end to 2010 for retailers was officially confirmed by the statisticians yesterday.

Retail sales in December were down 1.1 per cent on November, seasonally adjusted, and core sales, which exclude the automotive sector, were down 1.2 per cent. A weak Christmas period had been foreshadowed by electronic card transactions for December, which were down 0.8 per cent overall and 1.6 per cent for core sales.

However, card spending rebounded in January, up 2.4 per cent on December on both a core and total retail basis.

For the December quarter as a whole, retail sales shrank 0.4 per cent in volume terms.

Goldman Sachs economist Philip Borkin said the weakness in volumes was dominated by the big ticket items - motor vehicles (down 8.2 per cent), furniture (down 9.4 per cent) and hardware (down 3.3 per cent) - which was unsurprising following the increase in GST on October 1.

Retail sales volumes had also shrunk 0.4 per cent in the September quarter, but the contraction was more widespread.

Core retail sales in the December quarter were flat in real terms.

"There remains a non-negligible risk of another negative quarter for GDP [in December], though the unchanged level of core volumes suggests this is far from a fait accompli," said ANZ chief economist Cameron Bagrie.

ASB economist Christina Leung said the caution households were displaying in discretionary spending reflected such headwinds as a weak housing market and slowing recovery in the labour market.

The Real Estate Institute reported just 3252 dwellings sold last month, a new low, while its price index was down 2.6 per cent on a year earlier and down 7.7 per cent on its peak in November 2007.

The unemployment rate rebounded to 6.8 per cent in the December quarter; there were 158,000 people unemployed, just 5000 fewer than the peak in December 2009.

Borkin expects house prices to continue to retreat over the first half of this year. With three-quarters of household assets tied up in housing, that would be likely to keep consumers cautious, he said.

Leung said the low level of house sales was likely to have driven the substantial declines in sales volumes of furniture, floor coverings, housewares and textiles, as well as hardware and building and garden supplies.

Bank of New Zealand economist Craig Ebert said per capita retail spending declined a further 0.7 per cent in the final three months of 2010, to be down 9 per cent from its peak. "As bad as this seems, by the same token it highlights the degree of adjustment consumers and retailers have weathered, from when everything hit its over-cooked highs, around four years ago."

Bagrie said households had not had much to cheer about over the past few months but there were signs the worst had passed.

"In the current deleveraging environment increases in spending are going to need to be income-led rather than funded by more borrowing," he said.

"The upshot is likely to be more moderate growth in consumer spending than in the previous cycle, but spending that will not increase the debt servicing bill for future generations."