Actual retail sales fall in April from a year ago; sixth month in decline (Update 1)

Actual retail sales (not seasonally adjusted) fell 1.7% in April from the same month a year ago, figures released by Statistics New Zealand (Stats NZ) show. However, excluding motor vehicle retailing, the value of sales remained steady from April 2008. (Updated to include BNZ economist's view) Seasonally adjusted growth of 0.5% for the month, driven partly by an apparent rebound in car sales, was slightly better than expected. But the trend of falling retail sales continues to drag on the economy as the recession extends towards the end of 2009 and unemployment rises towards 8% next year. These figures are unlikely to change the Reserve Bank's view expressed yesterday that the OCR will stay at or below 2.5% until late next year. Firm department store sales also reinforce some early signs pointed to by the Reserve Bank that consumers are feeling more confident as the housing market stabilises. Unadjusted retail sales figures have now fallen year-on-year for each month from November through to April led by the demise of motor vehicle sales. Sales of furniture and floor coverings took yet another hit in April and were down 26% from a year ago, led by the fall in housing construction. April was its seventh consecutive month of year-on-year decline, with an average fall of 16.5%. The 0.5% increase in ex-auto sales from April 2008 was led by a 12.9% rise in the amount spent on fresh produce. There was also a 9% rise in spending in supermarket and grocery stores over the year. Takeaway food retailing rose by 9.3%. Actual figures showed motor vehicle retailing was still being hit hard, down 18.2% from a year ago, although this rate of decline was less than the 27.4% seen in February. Seasonally adjusted, Motor vehicle retailing sales rose 3.5% from March. Seasonal adjustment showed total retail sales rose 0.5% in April from March, but fell 0.1% if motor vehicle, and automotive categories (including fuel retailing) were excluded. Here is the initial reaction on the seasonally adjusted figures from Helen Kevans at JP Morgan

Retail sales values in New Zealand were up 0.5%m/m in April (J.P. Morgan 0.1%, consensus 0.2%), after falling 0.2% in the previous month. Statistics New Zealand (SNZ) reported that retail sales increased in 14 of the 24 store categories, led by a 3.5%m/m rise in the volatile car sales component. Ex-auto sales remained weak, falling 0.1%m/m (J.P. Morgan -0.2%, consensus 0.4%). Surprisingly, sales in discretionary areas of retailing posted solid gains. Department store sales, for example, were up 4%m/m in April (or NZ$12 million). But, as expected, the trend in retail sales continued to fall (-0.1%m/m). This trend has been in decline since January last year, extending the most prolonged period of decline on record. We expect this to continue, with household spending, on our forecasts, to fall 2% in 2009. Despite recent improvements in confidence, consumers have become increasingly reluctant to spend amid widespread recession fears and heightened anxiety about job security. Rising unemployment probably is the biggest headwind facing Kiwi consumers. Employment contracted 1.1%q/q and the unemployment rate rose to a six-year high of 5% in 1Q. Further, the number of underemployed increased markedly, with 21% of workers saying they wanted to work more hours. With business confidence near multi-decade lows and companies choosing to shed workers to trim costs, the resulting rise in unemployment will weigh heavily on the consumer. We can't rule out further policy support, however. The RBNZ has left the door open to further policy easing, if deemed necessary. We maintain our call for a terminal cash rate of 2.25%, but acknowledge that the RBNZ's easing cycle may already have met an end. A material change in the global outlook or a significant tightening of domestic monetary conditions, however, probably will trigger a further reduction the cash rate.

April's retail sales were always going to be a key test of whether the tax cuts at the beginning of the month gained any economic traction, spending-wise. This morning's figures failed that test, to our disappointment, in showing that ex-auto retail sales fell 0.1% in April, with total sales nudging up 0.5%. Instead of the tax-cut boost we expected, the sizeable hurdles still facing the household sector appeared to be the dominant influence, as was the obvious risk, with April's sales basically extending the wishy-washy trend of late. Still, it does look to us as though the positives will outweigh the negatives for the retail sector in the months ahead.