Retail spending slows as cooling house prices put damper on economy

Westpac senior economist Satish Ranchhod says the spending downturn chimes with other signs that the economy is slowing. 

Flat retail spending in the first three months of the year signals the economy is slowing, an economist says.

After an adjustment for price and seasonal effects, total retail sales volumes in the March quarter rose a mere 0.1%, Statistics NZ says.

This is despite rising job numbers, high migration and record international tourism. The modest rise compares with the 1.4% increase in the December 2017 quarter.

Westpac senior economist Satish Ranchhod says: “It was a soft start to the year for retail spending. [It] was well below analysts’ forecasts, including our own, for a gain of around 1.0%.

"Much of the weakness in spending was concentrated on vehicle and fuel spending. These were dampened by falls in petrol prices and delays with vehicle importation."

He says the downturn chimes with other signs that the economy is slowing.  

“We expect household spending growth will remain modest over the coming year as the housing market cools in response to government policy changes.

“Population growth is also expected to ease back gradually over the next few years. Indeed, today’s lower than expected net migration result reinforced that view.”

Electronics spending up
New Zealanders are spending more on electronics and appliances but less on clothing and footwear, the figures show.

Of the 15 retail industries, seven had higher sales volumes in the March 2018 quarter, and eight experienced lower sales volumes. The largest industry increase came from a record dollar value rise in electrical and electronic goods retailing (up 5.4%).

"Steady growth in sales volumes for electronics and appliances have led the rise this quarter,” retail trade manager Sue Chapman says. “There has been sustained growth in this industry for some time, with sales trends rising over the past 10 years."

Other industries with large movements were:

  • supermarket and grocery stores (up 1.0%);
  • pharmaceutical and other store-based retailing (up 2.7%); and
  • clothing, footwear, and accessories, which had the largest decrease (down 5.0%).

When the effects of price changes are included, total retail sales values rose 0.2% ($58 million) in the March 2018 quarter, following the 1.7% ($379 million) rise in the December 2017 quarter.

Of the 15 retail industries, seven recorded higher sales values and eight lower sales values in the March 2018 quarter.

Petrol price increases contributed the largest rise, up 3.4% ($70 million). This is the second consecutive increase for fuel after a 4.3% ($84 million) rise in the December 2017 quarter.

The largest decreases in the March quarter were clothing, footwear and accessories, down 5.1% ($49 million) and motor-vehicle and parts retailing, down 1.1% ($38 million).

In actual terms, the value of total retail sales was $23.1 billion in the March 2018 quarter, up 3.4% ($757 million) from the March 2017 quarter.

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