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NZ retail sales fell 1.2% in May, led by slump in vehicles

Monday 14th July 2008

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New Zealand retail sales fell more than expected in May, led by a slump in motor vehicles, stoking expectations the central bank will start lowering interest rates as soon as this month.

Sales fell 1.2% in May, seasonally adjusted, from May 2007, Statistics New Zealand said. Economists had expected a 0.1% decline, according to a Bloomberg survey. Auto sales tumbled 14.8%, the biggest decline since March 1997.

Since May, reports have shown consumer confidence has slumped and some economists predict the economy could be heading for its third quarter of contraction. The central bank has the unpleasant task of coping with stagflation, with inflation accelerating while GDP shrinks.

“The numbers have stalled,” said Robin Clements, senior economist at UBS. On a trend basis they’re “the weakest since the last recession – the picture hasn’t changed.”

Excluding autos, core retail sales rose 0.7% in the latest month, with supermarket and grocery store sales rising 3%. Of the 24 industries measured, 14 had only modest movements in sales in May, Statistics New Zealand said. The core trend, which rose 0.4% on average each month since the survey began in May 1995, have declined in the past year.

Auto sales have declined amid rising costs and dwindling availability of vehicle finance, the soaring price of fuel and the impact on households of more-expensive food items. Sales of furniture and floor coverings declined 15.6%.

Eroding Profits

The government figures bear out reports from retailers such as Warehouse Group and Briscoe Group, which have cut their profit forecasts amid waning demand. Warehouse stock fell 0.5% to NZ$3.98 today and has dropped 30% this year, while the NZX 50 Index fell 23%. Briscoe was unchanged at 90 cents and is down 36% this year.

Clements predicts Reserve Bank Governor Alan Bollard will lower the official cash rate from a record 8.25% in September, though he says it is “close to the wind” whether the bank will move earlier.

The economy contracted 0.3% in the first quarter and probably shrank in the second quarter. Consumer confidence sank to a 17-year low, according to a survey last month.

“The economy is heading backwards, and we are facing more than just a technical recession,” ANZ Bank economists said in a report before the retail sales figures were released. “We are now expecting a July rate cut from the RBNZ. The market has moved to price in a 60% chance of that.”

Investors will get another clue to the damage rising fuel and food costs are having on a weakening economy tomorrow, with the release of the Consumers Price Index for the second quarter. Economists expect inflation was 3.8% year-on-year in the June quarter and may speed to over 5% in the third quarter – well above the central bank’s prediction of 3.7%.

By Jonathan Underhill

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