Slowing growth reflected in sales

By BRIAN FALLOW

Growth is moderating in the retail sector.

Adjusted for inflation and seasonal effects, retail sales grew by 1 per cent in the March quarter, the smallest quarterly increase since September 2001, Statistics New Zealand said.

Westpac economist Richard Sullivan said that since the housing market peaked at the end of last year, the housing-related drivers of retail spending had also eased.

Sales volumes in appliance stores fell 2.3 per cent in the March quarter, and 1.1 per cent in hardware stores.

Furniture and floor covering volumes rose 1.9 per cent, but that was the weakest growth since June 2001.

Department stores and footwear outlets had a good March quarter, however, posting real gains of 5 and 5.3 per cent respectively.

In all, nine of the 15 store types recorded real sales growth in the quarter.

For the month of March, retail sales fell 0.7 per cent seasonally adjusted, and were 5.4 per cent ahead of March last year, the weakest annual growth for two years.

Core retail sales, which exclude car yards and service stations, fell 0.3 per cent, after a 1.7 per cent rise in February and flat results in January and December.

Deutsche Bank economist Darren Gibbs said: "Looking through the month-to-month volatility, the retail data continues to suggest that a gentle slowdown in growth remains under way, reflecting the peaking of migration inflows and housing market turnover, weaker farm incomes and slowing employment growth."

Retail prices rose 0.3 per cent in the quarter, although there was great variation between store types.

Motor vehicle services (mainly petrol) recorded a 3.7 per cent rise in prices, but much of that was likely to be reversed in the June quarter, Sullivan said.

Appliance retailers lowered prices by 1.8 per cent on average.

Sullivan said the Reserve Bank was likely to see the retail data as further evidence of a slowing domestic economy, prompting another cut in the official cash rate of 25 basis points on June 5.

"The slowdown in retail sales, while quicker than the market had anticipated, is hardly a sign of an abrupt end to economic growth, but rather a more orderly passage to slower growth," he said.

Westpac thinks only one further cut in the cash rate will be required.