Core retail spending up 0.6% in December quarter as spending recovers modestly (Update 1)

Core seasonally adjusted retail spending rose 0.6% in the December quarter 2009, Stats NZ said today. This was in line with a similar rise in the previous quarter and was driven by a rise in spending in bars and restaurants, while spending in supermarkets, hardware and furniture stores fell. (Update 1 includes ASB economist saying consumers are being cautious and the RBNZ can afford to leave the OCR at 2.5% until June) Automotive fuel sales rose 5.7%, while the total value of total sales rose 1.0%. This is the third consecutive quarter of an increase in total sales values after one year of decline, business statistics manager Kathy Connolly said. To view the press release see here:

The volume of core retailing, which excludes the four vehicle-related industries, also rose "“ up 1.3 percent. Appliance retailing was the main contributor to this increase, as it has been for the past three quarters. The value of total retail sales rose 1.0 percent ($171 million) in the December 2009 quarter, while core retail rose 0.6 percent ($77 million). "This is also the third consecutive quarter of increases in total sales values, and follows one year of decline," Kathy Connolly added. The increase in total sales was led by automotive fuel retailing (up 5.7 percent or $88 million) and cafes and restaurants (up 6.3 percent or $61 million). Fuel retail values rose despite a 2.0 percent drop in volumes, implying an increase in prices. Following increases of 0.2 percent and 0.8 percent in the October and November 2009 months respectively, total retail sales showed no overall movement in the December 2009 month. This flatness is the result of an unprecedented fall of 1.8 percent ($76 million) in the core retailing industries being balanced by a 5.6 percent ($76 million) rise in the vehicle-related industries, the largest monthly gain since April 1997. By industry, the biggest falls were in core retailing: supermarket and grocery stores were down 2.1 percent or $27 million and department stores were down 4.7 percent or $15 million. By far the largest rises were vehicle-related: motor vehicle retailing was up 7.6 percent or $41 million and automotive fuel retailing was up 6.2 percent or $33 million.

Encouragingly, spending on big-ticket items show signs of improvement with vehicle sales continuing to recover from very weak levels earlier last year. Nonetheless, this recovery in consumer spending still looks to be a gradual one, and with data showing household credit remaining subdued in recent months it looks like households are continuing to be cautious about spending. As such, the RBNZ can afford to wait until the middle of this year to hike and we expect a 25 basis point increase in the OCR in June.