Retail sales remained brisk in the June quarter but economists are uncertain how long the momentum can be maintained in the face of a slowing world economy.
With price changes stripped out, retail sales grew 0.9 per cent in the June quarter, following a 1.1 per cent increase in the March quarter, Statistics New Zealand reported yesterday.
Excluding the automotive sector, sales volumes grew 1 per cent, the same as in the March quarter. But the data were always going to have a feeling of "that was then, this is now" about them, Bank of New Zealand economist Doug Steel said.
"It supports our view that the economy overall was making some decent progress post the major earthquake in February and prior to the latest ructions overseas."
However, the "shenanigans" on world financial markets raised questions about how domestic confidence and spending were tracking now, irrespective of what happened back in the June quarter, he said.
The OECD reported this week that gross domestic product growth across its member states slowed to just 0.2 per cent in the June quarter, the fourth consecutive quarter of slower growth. And its composite leading indicator continues to point to a slowdown in activity not only in most OECD countries but in China as well.
The 2 per cent rise in real retail sales over the first half of the year reflected a fundamental improvement in the labour market, including 29,000 more jobs in the same period and firming wage growth, Steel said. The fact that retail sales rose more strongly in rural areas than urban ones provided some evidence strong export prices were filtering through to consumer spending.
Stabilisation in the housing market and the Reserve Bank's emergency interest rate cut in March would also have helped, but were of second-order importance, he said.
ASB economist Christina Leung said there was an encouraging improvement in spending on discretionary items, as opposed to necessities reflected in higher sales volumes of electronic goods, clothing and in department stores.
"There have been anecdotes of households buying new large-screen televisions ahead of the Rugby World Cup, and this may have underpinned the whopping 10 per cent increase in sales volumes of electronic goods in the June quarter."
The retail sales figures added to the recent run of domestic data showing a continued recovery in underlying activity in the economy, Leung said.
"Employment demand and housing market activity have shown encouraging signs of recovery over 2011, and this has underpinned a rebound in consumer confidence. We expect this will flow through to a continued improvement in retail spending over the coming year."
However, with global risks continuing to dominate market attention, ASB expects the Reserve Bank to hold off taking back March's 50 basis point insurance cut to the official cash rate until December this year.
Steel said the decent lift in volumes in the first half of this year left real per capital sales 7.7 per cent below their peak level in March 2007.
"In fact, we are buying roughly the same amount of stuff on average per person that we were back in 2004."
The key question was whether the latest pick-up in retail sales signalled households' behavioural adjustment on spending, saving and debt reduction was nearing completion.
"Alas, it is too early to tell," he said.