Retail sales boosted by pre-GST buy up in September, Stats NZ says

A firm September month for retail sales ahead of the October 1 GST increase boosted sales in the September quarter, Statistics New Zealand said today.

The value of seasonally adjusted retail sales during the three months to September 30 rose 0.8%, or NZ$133 million, from the June quarter, Stats NZ said.

"This quarterly rise is mostly due to increased sales in the September month, particularly in furniture and floor coverings, and appliance retailing," Stats NZ business statistics manager Louise Holmes-Oliver said. "It's likely this reflects spending timed to beat the GST rise."

In the September 2010 month on its own, seasonally adjusted retail sales rose 1.6%, or NZ$86 million from August, Stats NZ said.

Following the figures, ASB economist Christina Leung said ASB still expected the Reserve Bank of New Zealand to next raise the Official Cash Rate in March 2011, from 3% currently.

Here is the release from Stats NZ:

The value of seasonally adjusted total retail sales rose 0.8 percent (NZ$133 million) in the September 2010 quarter, Statistics New Zealand said today.

"This quarterly rise is mostly due to increased sales in the September month, particularly in furniture and floor coverings, and appliance retailing," business statistics manager Louise Holmes-Oliver said. "It's likely this reflects spending timed to beat the GST rise."

Both total and core retail sales (which excludes the four vehicle-related industries) increased in the September month, each up 1.6 percent.

For the quarter, supermarkets and grocery stores were up 1.5 percent ($57 million), the biggest contributor to the increase in the sales value. Appliance retailing was by far the main contributor to the increase in sales volume. Appliance retailing has been the largest single contributor to the rise in both total and core sales volumes in four of the past six quarters.

The volume and value of core retailing rose in the September 2010 quarter – both up 0.9 percent. The volume of total retailing was up 0.7 percent.

Auckland and Canterbury had the largest regional rises in the September quarter – both up 1.4 percent ($76 million and $29 million, respectively). However, in the September month, all regions showed robust growth, except for Canterbury, which recorded an increase of only 0.1 percent ($1 million). The Canterbury earthquake occurred on 4 September 2010.

Here is the reaction from ASB economist Christina Leung.

Given the strong sales result was largely driven households bringing forward the purchases of big-ticket items in September, we expect some payback in the coming months. In particular, we expect a decline in sales of furniture and appliances in October. Indeed, the latest electronic card transactions data suggests a fall in spending in October once the price effects of the increase in GST is taken into account.

Nonetheless, beyond the volatility in furniture and appliance sales we are seeing a continuation of a gradual recovery in retail spending. Households look to be more willing to spend on discretionary items, and we expect sales will trend higher over the coming year as the improvement in the labour market underpins consumer confidence. This will be a gradual process and some pockets of weakness in the household sector remains, as highlighted in last week’s weak housing market data. We continue to expect the RBNZ will increase the OCR in the March meeting.

Here is the reaction from Westpac economists in their release titled "Party like it's $19.99"

Just last week, RBNZ Governor Bollard warned that the market was reading some recent data too optimistically, citing employment and retail sales in particular. While it's highly unlikely that he had today's figures in mind, we think that caution is still warranted. The current and upcoming figures will be a poor guide to the underlying strength of retail spending, due to the distortions from the GST effect and the Canterbury earthquake; it's likely that Q3 volumes were inflated and that Q4 volume growth will be relatively weak. Electronic card transactions for October hint at the post-GST letdown in sales volumes that we would expect to see.² 

In nominal terms, retail spending growth has been remarkably steady during the recovery - the 0.8% increase in Q3 was squarely in the middle of the range of the last six quarters - while the variation in 'real' terms has largely been driven by the variation in prices. In other words, consumers still seem to be willing to spend, but they are highly price-sensitive. That is more consistent with our view that consumers have been constrained by the pace of income growth to date, than with the RBNZ's view that consumers are actively engaged in deleveraging.

(Updates with Westpac, ASB economist comments, monthly change, year on year chart.)