Plunge in retail sales sign of belt-tightening

Photo / Dough Sherring

Described variously as "nasty", "ugly" and "a shocker", the March quarter's plunge in retail sales activity is seen as the clearest evidence yet that New Zealanders are making the painful adjustment towards living within their means.

In real terms retail sales shrank 2.9 per cent, twice as much as economists had expected and twice as much as the previous record fall.

It was a lurch lower from levels that had already been trending down for more than a year. The September 2007 quarter was the last to record real growth in retail sales.

It has reinforced economists' expectations that the March quarter's GDP numbers will prove at least as bad as December's 0.9 per cent drop.

Treasury Secretary John Whitehead in a speech yesterday said: "We believe New Zealand is in its sixth quarter of recession now and there is likely to be at least one more before we get some tentative growth at the end of the year."

Car saleyards suffered most, down 11.4 per cent on the previous quarter, but even excluding the automotive sector sales volumes were down 1.2 per cent, double the previous record fall.

"Anything discretionary or housing-related or exposed to tourism saw volumes contract sharply," ASB economist Jane Turner said.

Appliance retailers saw 5.6 per cent less go out the door while furniture stores, where sales volumes had been going backwards for five quarters, suffered another 3.6 per cent decline.

Falling tourist numbers hit the accommodation sector, with sales down 3.9 per cent on top of a 1.5 per cent crop in the December quarter.

In all of the 24 store types Statistics New Zealand divides retailers into, only six recorded positive real growth. That included the largest, supermarkets and grocery stores, where sales were up 1.9 per cent on the previous quarter.

In dollar terms sales were down 1.5 per cent, adjusted for seasonal effects. That included a 0.4 per cent decline in the month of March.

"Last week's electronic card transactions figures for April did show a 0.3 per cent increase in retail transactions," Westpac economist Dominick Stephens said. "But that reads more like a lacklustre response to the tax cuts that came into effect on April 1 than a portent of sustained retailing recovery.

"It seems increasingly likely that most of the cash from tax cuts and lower interest rates will be saved rather than spent."

The twin busts in house prices and share prices had forced many people to take a long hard look at their overall wealth and long-term spending power, Stephens said. "The long overdue correction to a more sustainable level of spending, financed by income rather than debt, is under way."

Per capita and adjusted for inflation, New Zealanders were now spending nearly 9 per cent less than they were two years ago, he said.

UBS economist Robin Clements said rising unemployment and concerns about job security would prove a headwind for the retail sector, but tax cuts and continued falls in effective mortgage rates as fixed rates roll over would provide some support.

"Conditions will no doubt remain challenging for the retail sector over the rest of the year but continued falls of this magnitude are very unlikely."

THE BIG DROP
* Retail sales fell 2.9 per cent in the March quarter in volume terms - a record drop.
* Per head of population they are the weakest they have been since 2004.
* Seventy-five per cent of store types went backwards.