Wednesday, February 15, 2012

NZ retail sales surprise on the upside

New Zealand fourth quarter 2011 retail sales surprised on the upside with a real seasonally adjusted increase of 2.2%. That’s good enough to bump our Q4 GDP forecast up to 0.8% q/q. The strong December quarter sales result follows a similarly robust increase of 2.4% in the September quarter and takes the annual rate of growth to 6.8%. Core sales (see chart below) are rising even faster.

There’s clearly a good dose of Rugby World Cup spending in this result, but our judgement is there’s a bit of underlying strength as well. The increase in sales was broadly-based both in terms of region and store-type: it wasn’t just the hospitality sector in Auckland that showed strength.

While we think there is some underlying strength in the result, it’s important not to get carried away. We expect retail sales for the current March quarter to show a small decline. Growth in household spending generally is likely to remain hard work, especially given the still only modest gains in employment. Last week’s drop in the unemployment rate was mostly driven by a decline in the participation rate.

While we’re on the subject of retail sales, January month US retail sales came in weaker than expected at 0.4% m/m. The market consensus was for an increase of 0.8. Core sales were stronger, but automotive sales pulled the overall result down. This result supports our view that strong consumption growth in the fourth quarter of last year was unlikely to be sustained in early 2012. Go the non-linear recovery.