Retail sales up 0.5% in March quarter (Update 1)

Seasonally adjusted retail sales rose 0.5% by value in the March quarter, boosted by significant increases in motor vehicle and fuel sales, Statistics New Zealand said today. (Update adds ASB economist Christina Leung's comments). See the full retail trade survey here and read Statistics New Zealand's statement below

The value of seasonally adjusted total retail sales rose 0.5 percent ($86 million) in the March 2010 quarter, Statistics New Zealand said today. This increase was buoyed by large increases in motor vehicle retailing and automotive fuel retailing. Motor vehicle retailing also led the slight increase in the volume of sales, which were up just 0.2 percent in the March 2010 quarter. To put these latest movements in context, the trend for total retail sales value has risen 2.9 percent since March 2009, and has now reached its highest level since the series began in September 1995. The total sales volume trend has risen 1.9 percent in the three quarters since June 2009, but is still 5.1 percent below its historical high, which was recorded in June 2007. Core retailing, which excludes the four vehicle-related industries, had a 0.7 percent fall in seasonally adjusted sales values in the March 2010 quarter. This is the largest recorded decrease for core retailing and was led by volume-driven decreases across a number of industries, most notably in supermarket and grocery stores and cafes and restaurants. Five of the seven food and drink related industries recorded volumes-led falls in sales value in the March 2010 quarter. In addition to supermarket and grocery stores, and cafes and restaurants, there were notable falls in liquor retailing, and bars and clubs. "These falls in volume indicate that either fewer individual items are being sold by these industries, or that more expensive items are being substituted with different, cheaper ones," business manager Kathy Connolly said. The only food and drink related industry to record a significant increase in sales volume was takeaway retailing. In the March 2010 month, seasonally adjusted total retail sales values increased 0.5 percent ($30 million) compared with February 2010. This month’s increase was predominantly driven by core retailing, which rose 1.1 percent ($44 million).

Today's result confirmed retail spending was subdued over Q1. For the March month, there was a recovery in spending values from the very weak levels of the past few months. While spending on appliances remained weak in the month, there was a rebound in department store sales suggesting some willingness on the part of consumers to spend again more recently. The 0.2% increase in Q1 total volumes largely reflects the weak results of the past few months. The areas of weakness were in spending on appliances, recreational goods, and eating out, reflecting the recovery in spending on discretionary items remaining very subdued. There were no surprises in retail prices, with the 0.4% increase in the total retail deflator in line with the 0.4% increase in Q1 CPI. Stock levels were up 1.3% on year-ago levels, the first positive quarter following a year of declines.  The recession and sharp decline in retail spending triggered many retailers to cut back on stock levels.  This quarter’s pick up in stock levels provides further evidence of growing confidence among businesses of a recovery in sales.  We expect the restocking phase of the recovery to underpin economic growth over the next few quarters. Nonetheless, the improvement in stock levels remains patchy, with only 10 out of 24 retail industries showing an increase in stocks.  The recovery in retail spending is yet to build momentum, with some of the retailers in weaker industries remaining more cautious.  We expect the recovery in retail spending to become more widespread as consumer confidence steadily improves over the year, underpinned by a firming labour market.  This recovery in turn will encourage further rebuilding of stocks in the retail industry. Implications The recovery in retail spending is occurring at a glacial pace. While most parts of the economy show signs of a self-sustaining recovery taking shape, the recovery in the household sector has been less convincing. Recent consumer credit data has also pointed to caution amongst households, which is unsurprising in light of the weak wage growth we saw in the recent labour market data. However, the recent strength in employment growth over Q1 increases our confidence that the recovery in the household sector will build over the remainder of 2010.