Retail sales figures have ended a bleak run of eight consecutive quarters of declines, according to Statistics NZ's retail trade survey for the March 2024 quarter.
Stats NZ said that the seasonally adjusted volume figures (which take out inflation impacts) had risen 0.5% in the March quarter.
The March quarterly volume figures were, however, still some 2.4% down on the comparable figures for the March quarter in 2023. And remember, the population's grown strongly in that time - so that's more people doing less spending.
And with Stats NZ's arguably more volatile, but more timely, electronic card transactions data for April having shown continued widespread weakness in spending, it remains to be seen whether these latest retail trade figures point to a turnaround for retail or will prove to be a blip.
Shoppers have been hit of course by the much higher interest rates prevailing, with, for example, one-year fixed 'special' rates for new mortgages averaging around 2.3% in March 2021 versus 7.2% for the same term in March 2024.
And there might not be much imminent relief on this either, with the Reserve Bank this week signalling interest rates might have to stay higher for longer, while it even considered raising the Official Cash Rate (OCR) higher than the current 5.5%, and there's still a chance it may do so yet.
Westpac senior economist Satish Ranchhod said the rise in retail spending in the March quarter was "well above our own and market expectations for a fall in spending in the early part of the year".
"However, rather than pointing to a resurgence in spending appetites, March’s rise in spending looks more like a bounce after the very large decline in the previous quarter. The broader trend in spending remains down," he said.
In terms of the detail in the March quarter 2024 figures Stats NZ said nine of the 15 retail industries had higher retail sales volumes in the quarter, compared with the December 2023 quarter, after adjusting for price inflation and seasonal effects.
The biggest contributors to the rise in retail activity in the March 2024 quarter were:
- food and beverage services – up 2.2%
- motor vehicle and parts retailing – up 1.1%
- recreational goods retailing – up 4.7%
- accommodation – up 4.1%.
Against this, hardware, building, and garden supplies were down 2.8%.
ANZ senior economist Miles Workman said the upwards surprise in the latest retail data "might sound reassuring at first blush", but it’s off an exceptionally weak base.
"And with headwinds for the consumer persisting, the Q1 data is unlikely to mark the beginning of a sharp uptrend."
He said retail has had a tough time of late, recording the weakest growth of all main industries over 2023.
And while ANZ's economists expect 2024 to "bring a floor" in headline GDP growth, "our expectation is that domestic demand will remain a little softer than the headline GDP figures over the year ahead, and retailers won’t find significant relief until after CPI inflation has been tamed and monetary conditions eased", Workman said.
Westpac's Ranchhod said he continues to expect softness in spending over the coming months.
"That’s consistent with recent retail card spending reports and feedback from retailers (many of whom have reported missing sales targets in recent months)."
ASB senior economist Kim Mundy expects the challenging conditions for the retail sector "to continue for a while yet".
"Cost of living pressures are expected to remain acute over 2024, given sticky (but cooling) domestically generated inflation. Our estimates suggest households could be facing up to an extra $70 per week in their living costs this year.
"The OCR has probably peaked, but there is still a considerable amount of additional tightening in the pipeline with a chunk of mortgage lending set to roll onto higher rates.
"Moreover, while net migration is still high, there are signs now that the peak in population growth is behind us. Progress is being made in lowering inflation, and household spending is generally going backwards, but OCR cuts remain some way off.
"The RBNZ’s message yesterday was that until domestically generated inflation is showing clear signs that it will return to target, the RBNZ is not willing to take its foot off the brakes. We expect the RBNZ to continue to repeat this hawkish message for some time and at this stage OCR cuts look to be a 2025 story," Mundy said.
10 Comments
Late 1990s Japan. The Ma & Pa neighborhood store would sell 30 x envelopes for 500 yen. Not long after, you could buy the same product for 100 yen at Daiso. Behaviors didn't change immediately but the writing was on the wall for the general trade local store.
Our biggest disadvantage is that our high cost structures make the market less attractive for the Temus and the Daisos.
Their market adjusted to the prosperity (or lack thereof) of it's citizenry.
There's really not much super unique about that. You can even see it within NZ, drive to a shopping area in Newmarket, Then say Mt Wellington, then head to Manurewa or Otara, and you'll witness retailers selling variations of items at wildly differing prices.
Groceries are cheaper than Japan in many parts of the world. That's not due to any superior business strategy of the food retailers in those areas.
Is it really bad for the economy in the long run? Distributing imports that directly compete with the likes of Temu isn't exactly good for NZ I'd argue. The jobs created are fairly low skilled and therefore businesses often hire unskilled migrants.
If a local seller can differentiate itself with quality services (repairs and maintenance, installation, warranties, etc.), that's a separate story. The HVAC space is a great example where local distributors and service providers retain a good portion of the sales margins.
If a local seller can differentiate itself with quality services (repairs and maintenance, installation, warranties, etc.), that's a separate story. The HVAC space is a great example where local distributors and service providers retain a good portion of the sales margins.
Daikin. Servicing industrial air conditioning on the West Coast of Australia. Company would fly their technical service people to Osaka 1 week per year for conference. No expenses spared. Kobe beef to your heart's content. Incredible company.
How much does it cost to replace a cracked smartphone screen now? I shudder to think.
The cost to replace a smartphone with a new one has gone in one direction, and the cost to replace an aircon unit has gone the other.
A big part of the reason is the labour to produce a functional smartphone has been mostly exported.
Week long junkets with Kobe beef sounds extravagant, but that does sound like an employer most people would rather have. Rather than a company who's needing to screw down every last cent, when price becomes the primary determinant of "value".
We now wickedly undervalue how much certain things should cost, because we've deflated them away using an out of sight, out of mind obfuscation.
Week long junkets with Kobe beef sounds extravagant, but that does sound like an employer most people would rather have. Rather than a company who's needing to screw down every last cent, when price becomes the primary determinant of "value".
Whether you're a miner, supermarket, or butchery, HVAC servicing is crucial for economic livelihood, particularly in places like WA with its unique climate.
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