Retail sales down in July; Department stores still feeling downturn (Update 1)

Seasonally adjusted figures show total retail sales in New Zealand fell 0.5%, or NZ$25 million, in July from June as department store sales continued to weaken, figures released by Statistics New Zealand (Stats NZ) show. Core retail sales, which exclude the vehicle related industries, were also down 0.5% (NZ$20 million) over the month. (Update 1 includes ASB economist comment that RBNZ may be relieved by continuing soft sales.) Unadjusted figures show total retail sales were down 1.9% from a year ago, as fuel prices fell over the year. Core retail sales were up 2.3% from July last year although department store sales fell 9.3%, compared to a 3.1% year-on-year fall in June. Seasonally adjusted figures show department store sales were down 2.2% in July from the month before, on top of falls of 2.8% in June and 0.2% in May. In a further tentative sign that the vehicle sales market may have bottomed out, motor vehicle retailing continued its slow upward trend in July, with sales at their highest point this calendar year. With total sales falling over the month, the rising trend in retail sales slowed in July. "The total retail sales trend has increased 0.9 percent since February 2009, after falling 3.3 percent between February 2008 and February 2009," Stats NZ said. "The core retail sales trend has been rising since September 1995 at an average of 0.4 percent per month. However, this rate of increase has slowed to 0.2 percent per month since December 2006," it said. "Seasonally adjusted sales were up in Auckland (0.8 percent), and down in all other regions. The retail sales trend for the North Island has been rising over the past five months, whereas the South Island trend has been declining since February 2009." The leading trends in retail sales are takeaway food retailing, which is up 9.6% over the year; and supermarket and grocery store retailing, up 8.9% in the last 13 months, Stats NZ said. The trend in furniture and floor coverings retailing has fallen 25.5% in the last 23 months, while the automotive fuel retailing trend was down 18.8% over 12 months, as pump prices for unleaded 91 fell 23% in that year. ASB economist Jane Turner said the Reserve Bank of New Zealand may be relieved to see consumer spending remaining soft.

At last week's monetary policy statement the RBNZ was uneasy about a household led recovery stalling the improvement in household savings. However, we remain a little cautious about interpreting this month's weaker than expected report. The weakness seems to defy most indicators, including consumer confidence, housing demand and electronic card transactions. The monthly survey is often plagued with volatility and could easily bounce back next month. Nonetheless, this weaker report does highlight that the recovery in consumer demand is likely to be muted, with households remaining cautious while unemployment continues to rise. In addition, the RBNZ has signalled further rate cuts are unlikely, paving the way for interest rates to continue to lift and dampen demand for both housing and consumer spending. The RBNZ now appears wary of any household-led recovery, hoping that an improved domestic savings rate will help the economy grow in the longer term.