Retail sales rebound but shoppers still cautious

Food and drink related activities, like eating at cafes and restaurants, made up half of core sales. Photo / Greg Bowker

Retail sales rebounded in March but not as much as expected, adding to evidence that consumer spending remains sluggish.

After a steep fall in February, economists had forecast a rebound in March.

It eventuated but barely reversed February's decline, leaving core sales (which exclude the automotive sector) for the quarter as a whole down 0.7 per cent on the December 2009 quarter in dollar terms and down 0.5 per cent in volume terms.

This is only the second quarterly decline in core retail sales since 1995.

Only higher turnover in the car yards and higher prices at the pump dragged the total sales for the March quarter back into the black. They were up 0.5 per cent in nominal and just 0.2 per cent in real terms.

In March core retail sales rose a seasonally adjusted 1.1 per cent, reversing February's 0.9 per cent decline but less than the 1.5 per cent rise the market consensus expected.

Department stores were up $20 million or 6.8 per cent. When the automotive sector is included, the increase in sales was 0.5 per cent, following a 0.6 per cent drop in February.

Half the value of core retail sales occurred in retail industries which one way or another involve food and drink, including supermarkets and grocery stores, cafes and restaurants, takeaways, liquor stores, bars and clubs, and fresh produce retailers, Statistics New Zealand said.

In the March quarter the drop in sales volumes was widespread. "In each case the fall was led by a drop in the volume of sales, moderated by slight price increases," it said.

"Either fewer individual items are being sold, or more expensive items are being substituted with different, cheaper ones."

Takeaways were the exception, recording a 3.2 per cent sales increase.

ASB economist Christina Leung pointed to an overall increase in retailers' stock levels as evidence of growing confidence about a recovery in sales.

"We expect the restocking phase of the recovery to underpin economic growth over the next few quarters. Nonetheless, the improvement in stock levels remains patchy, with only 10 out of 24 retail industries showing an increase in stocks," she said.

Reserve Bank data shows consumer credit levels at the end of March down 4 per cent on a year earlier. Leung said the caution was unsurprising in light of the weak wage growth recorded in labour market data.