Weak retail sales show GDP to fall further than expected in March; more pressure on RBNZ

There was little respite for New Zealand's retail sector in March, as total retail spending fell 1.9% from March 2008, figures from Statistics New Zealand (Stats NZ) showed. Vehicle retailers, department stores, bars and clubs were among the industry groups worst hit as the recession seemed to get worse through the first quarter of 2009. Seasonally adjusted sales volumes in the first quarter fell by 2.9% from the December quarter, largely due to falls in vehicle retailing. This was a record quarterly fall, government statistician Geoff Bascand said, and was bigger than the 1.8% fall generally expected by economists. "This indicates that first quarter GDP is likely to be even weaker than we anticipated before the data," JP Morgan Chief Economist Stephen Walters said. "We have been forecasting a fifth straight quarter of falling GDP but, in the wake of today's data, the risks are skewed heavily to the downside," Walters said. "In terms of the policy outlook, today's weak retail data strengthens our view that the RBNZ's easing cycle is not yet over. We anticipate "only" a 25bp rate cut on 11 June, which will take the OCR down to 2.25%. In the wake of today's data, however, the dominant risk is that Governor Bollard decides to trim the cash rate more assertively," he said. The motor vehicle retailing industry has been in trouble for over a year now, and with the 18% year on year decline in vehicle retailing taken out of the equation, actual retail sales rose by about 0.4% in March from a year ago (see chart). However, Easter (with its public holidays) in 2008 fell during March, while in 2009 it was during April. One positive that may be taken away from the latest figures is that the 1.9% fall in total sales in March was not as bad as the 6.9% fall in February, or the 3.7% fall in January. Department stores experienced their fourth consecutive month of annual declines in retail spending, down 5.1% in March from a year ago, the same fall as in February. Spending in bars and clubs also saw its fourth contraction in a row, down 4.1% from 2008. One notable rise in spending was for fresh produce, up 15.2% in March from a year ago. Supermarket and grocery store spending was up 4.3% due to higher prices and volume of sales, and other food retailing was up 6.3%. Spending on takeaway foods rose by 4.3%, its biggest rise since October. In the March quarter, total retail spending fell 4.1% from the same quarter in 2008. The previous two March quarters had experienced growth of 4.1% (2008) and 6.9% (2007). Excluding the wider automotive industries, spending in the March quarter rose 0.5%, compared to 3.3% in 2008 and 8.1% in 2007.