Retail sales shrink in December

Photo / Steven McNicholl

New Zealand retail sales tumbled more than expected in the Christmas season as spending on groceries, hardware, gardening and building supplies tumbled.

Total retail sales fell a seasonally adjusted 1.1 per cent to $5.4 billion, with an 11 per cent slump in hardware and gardening equipment, and a 2.9 per cent decline in supermarket shopping. That's almost six times the 0.2 per cent contraction forecast by a Reuters survey of economists.

Core retail sales, which strips out spending on motor-vehicle related items, fell 1.2 per cent to $4.2 billion.

The New Zealand dollar dropped as low as 75.52 US cents from 75.82 cents immediately before the announcement, and recently traded at 75.67 cents.

"The chance of a contraction in (fourth quarter) GDP is still not trivial, although it is not our central view at this stage," said Philip Borkin, an economist at Goldman Sachs & Partners.

"We continue to look for a September resumption of the RBNZ tightening cycle, although this is dependent on a stabilisation in house prices."

The softer numbers are unlikely to prompt the Reserve Bank of New Zealand to start tightening rates any time soon, and traders are betting Governor Bollard will hike the official cash rate 51 basis points over the coming year according to the Overnight Index Swap curve.

Finance Minister Bill English last week flagged the possibility of a double-dip recession in the second half of last year as households continue to focus on repaying debt rather than ramping up spending.

Christina Leung, economist at ASB Institutional, said the weakness in retail spending was probably following the subdued property market, which showed sales sank to a record low last month.

"The low level of house sales is likely to have driven the substantial 9.4 per cent decline in sales volumes of furniture, floor coverings, houseware and textiles, as well as hardware, building and garden supplies," Leung said.

"With fewer people moving houses, there is less need to purchase items in these categories."

Still, January data on electronic card spending showed the number of transactions lifted 2.2 per cent, the biggest monthly increase in five years.

Today's release marks the switch to a quarterly basis, with total retail sales volumes down 0.4 per cent in the three months to Dec.31 compared to the previous period. Sales values eased down 0.1% to $12 million in the period compared the previous three months.

Core retail figures for the quarter were flat, with volumes up 0.1 per cent and values down 0.1 per cent to $11 million compared to the previous three months.

Nine of the 15 retail industries saw lower sales over the December quarter, which included eight of the 13 core retail industries.

Spending on motor vehicles and parts fell the most, down 8.2 per cent to $167 million, its first decrease in almost two years.

This was followed by durables, down 9.7 per cent to 43 million, and hardware, building and garden supplies, down 2.9 per cent to $34 million.

The largest increase in the quarter came from fuel retailing, up 10.4% to $166 million, due to rising petrol costs.