Retail fall indicates slowdown

By BRIAN FALLOW

Some of the heat went out of the retail sector in May, a sign that recent and expected interest rate rises and the worsening outlook for farm incomes may be starting to bite.

Retail spending was 1.2 per cent less than in April, seasonally adjusted, Statistics New Zealand said.

Some decline was expected because Easter was early this year.

That meant April had more trading days than usual, something that happens too rarely for the seasonal adjustment techniques to handle.

But the month-on-month decline was twice what the markets had expected.

Compared with May last year sales were up 8.3 per cent overall and up 7.6 per cent excluding the motor-vehicle sector.

But that sort of annual growth, while still robust, represents a slowdown. In the first four months of the year total retail sales had been on average 9 per cent ahead of year-earlier levels, and core retail sales 8.6 per cent ahead.

Statistics New Zealand's trend measure, which excludes seasonal and irregular effects, tells a similar story. Trend growth, it estimates, was 0.5 per cent in May, half its rate earlier in the year.

The loss of momentum was widespread. Of the 15 store types only three (recreational goods, accommodation, and cafes and restaurants) saw their annual growth pick up.

Deutsche Bank economist Darren Gibbs said several indicators in recent weeks suggested the growth in retail sales had peaked already.

The latest Colmar Brunton poll showed a fall in consumer optimism from a net 39 to 24 per cent, much more than could be explained by seasonal factors.

House sales look to have fallen significantly last month, after a small decline in May.

Car registrations had been at historic highs early in the year ahead of the introduction of more stringent safety regulations for used cars. They had declined since then, apart from a small rise last month.

The strength of retail spending was one of the underpinnings of the Reserve Bank's hawkish monetary policy statement in May.

But Bank of New Zealand economists doubt yesterday's data will ruffle the central bankers' view of solid spending in the near term.

"The bank made it clear at last week's official cash rate review that it saw the domestic economy as performing very well. Rather, the issues that are likely to dominate the August 14 monetary policy statement are the exchange rate and global uncertainty."