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NZ retail sales fall more than expected on weak consumer demand

Friday 12th September 2008

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New Zealand retail sales fell more than expected in July, on a drop in supermarket, furniture and autos, adding to evidence consumer demand has weakened as the economy shrinks.

Retail sales fell 0.8 percent from June, seasonally adjusted, according to Statistics New Zealand. Economists had expected a decline of 0.3%. Sales excluding auto-related items fell 0.2% versus a consensus gain of 0.2%.

Warehouse Group Ltd., the largest retailer on the NZX 50 Index, today posted a 21 percent decline in full-year profit, citing lower demand and rising costs. It is "too early" to provide earnings guidance for 2009 though sales likely will remain subdued, the company said. The economy contracted in each of the first three quarters of this year, according to the Treasury's latest estimate.

"The outlook for retailing remains challenging," said Shamubeel Eaqub, economist at Goldman Sachs JBWere. "A concerted recovery is unlikely until the OCR is closer to 6%, the housing market has started to improve and the threat of job losses has diminished."

The central bank yesterday cut the official cash rate a greater than expected 50 basis points to 7.5% and said there is room to cut rates further because of deteriorating economic conditions and the prospects of slower world growth.

The New Zealand dollar was little changed at 65.29 U.S. cents after the report from immediately before. It has tumbled from more than 71 cents in late August.

"A clear shift in consumer sentiment occurred during this period which placed significant pressure on retail sales with margins coming under further pressure as retailers sought to clear seasonal inventories," Warehouse chief executive Ian Morrice said today.

Petrol prices rose 3.5% in July, while food prices rose 0.6%, eating into households' discretionary spending. Furniture and floor covering sales fell 4.8% seasonally adjusted, from June, while hardware sales declined 3.3%. Supermarket and grocery sales dropped 2%. Auto sales fell 5.3%.

Among gainers, department stores posted a 5.9% advance.

By Jonathan Underhill

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