Strong dollar fuels shoppers

By BRIAN FALLOW


Retail sales surged in October, recording the strongest monthly increase since April last year.

Food retailers, whose sales rose 3.5 per cent on September seasonally adjusted, accounted for half of the overall increase. Food represents about 22 per cent of retail spending.

But the rise was broad-based, with increases recorded by 12 of the 15 store types Statistics New Zealand divides the sector into, including furniture and floor coverings (3.5 per cent) and recreational goods (4.7 per cent). Compared with the same month last year, sales were 7.4 per cent higher, the briskest annual growth since January.

In Auckland they were 9 per cent up on October last year.

Bank of New Zealand economist Craig Ebert thinks most of the increase in nominal sales would represent higher volumes of goods going out the door rather than higher prices. The appreciation of the dollar had cut the prices of imported goods.

"Such pass-through of foreign exchange gains has, of course, been one of the very factors stimulating consumer demand, as has heavy discounting to bring inventories under control and to meet competition.

"But we still wonder whether the recent spending sprint just raises the risk of consumers getting the stitch going into next year."

Factors which could cause a less-rapid pace of spending from here included an easing in net immigration, a housing market likely to come off the boil, higher interest rates and the impact of the high dollar on rural incomes, Ebert said.

A factor underpinning the retail sector has been robust growth in employment and wages.

Job advertisements fell last month but ANZ, which monitors them, cautioned against seeing that as a sign the labour market is weakening. Its job ads series fell 2.1 per cent to a level slightly below where it was in July but still 3.7 per cent up on a year ago. It was driven by a 4.9 per cent decline in Auckland.

Job ads in Auckland have tapered off from a peak last January, which ANZ says may reflect some relief being provided by immigrants entering the labour market.

ANZ chief economist David Drage said: "I would caution against seeing this month's result in isolation.

"While we seasonally adjust the series, job advertising is inherently volatile at this time of year. A sharp drop is traditionally recorded as we move into the Christmas/New Year period."