Gavin Evans: Looking for economic clues? Retail results are a good place to start

It's tough out there, retailers say. Photo / Getty Images

COMMENT:

Mixed results from the country's retailers last week may cool expectations for a rapid turnaround from the Reserve Bank's pre-emptive 50-point rate cut this month.

Growth in the economy is slowing – not falling off a cliff. But household spending looks to have flattened off or fallen in recent months, potentially compounding the slowdown already evident in international tourist arrivals, declining net migration and now manufacturing.

After double-digit growth in late 2018, electronics retailer JB HI-FI last week said same-store sales growth in New Zealand was down to 1.9 per cent in the June quarter and then fell 0.3 per cent in July.

Outdoor equipment retailer Macpac – which has about half its stores in New Zealand – noted a slowing in June-quarter sales growth and attributed a decline in same-store sales across the group since June 30 to a change in timing of its major winter promotion.

Kathmandu has described New Zealand retail conditions as "challenging". Photo / Nick Reed

Kathmandu – another potential victim of the late start to winter this year - this month described New Zealand retail conditions as "challenging". The 3.9 per cent slide in full-year same-store sales it reported this month implies a 5 per cent contraction in the six months through July.

Jeweller Michael Hill International last week said its New Zealand revenue for the year through June fell 4.1 per cent from the year before.

It's not a consistent picture, and one that is complicated for some product lines by the late start to winter. Briscoe Group this month noted that the 2.3 per cent same-store sales growth reported by its homeware division in the second quarter had been boosted by clearance of winter stock and came at a cost to margin.

Stats NZ last week reported that retail spending on electronic cards in July fell 0.1 per cent from June, seasonally adjusted. It was the third decline in five months. Compared with June last year, fuel was the only segment to show an increase.

Industry group Retail NZ's June-quarter survey, published at the start of the month, showed that 58 per cent of member firms surveyed didn't meet their sales targets for the period – the most since the survey began mid-2015. Nor did 43 per cent of firms – another record – expect to meet their targets for the current quarter.

Michael Hill International's New Zealand revenue fell 4.1 per cent for the year through June. Photo / Supplied

Association chief executive Greg Harford said households aren't feeling especially upbeat, with consumer sentiment in Auckland probably affected by the housing market downturn there.

But he said that for the past 18 months to two years there has also been real pressure on household budgets. In Auckland that has been from regional fuel taxes, while households in Christchurch and Wellington are facing increased quake-related insurance costs. Rural New Zealand also faces its own pressures, he added.

"We've actually seen concerted pressure on retail spending for quite a long period of time," Harford told BusinessDesk.

"Council rates are also going up substantially and that all just takes disposable income away from households."

The Reserve Bank is hoping its rate cut will encourage households to spend a bit more and for firms to invest more.

And they may well do. The ANZ-Roy Morgan survey this month showed consumers were still happy to buy big-ticket items, although their expectations for the economy in a year's time had slumped.

But a weaker New Zealand dollar – the flipside of lower interest rates - also makes imported products more expensive. The weaker currency will also tend to hold up petrol prices, which have been above $2 a litre for most of the past 18 months.

The kiwi dollar has fallen about 2.4 per cent against the US dollar over the past year, but is down more than 6 per cent against the yen for the same time.

New-vehicle sales have fallen sharply this year, albeit from very high levels. Colonial Motor Co last week reported an 11 per cent decline in trading profits for the year through June and noted the "continued uncertainty" created for the local economy by domestic and offshore pressures.

New-car sales for the seven months through July are down about 5.2 per cent from the year before. But that is better than Motor Industry Association chief executive David Crawford had expected, and only takes them back to 2016 levels. Sales in January and February had been the second-highest for those months on record.

Briscoe Group's 2.3 per cent same-store sales growth in the second quarter were boosted by clearance of winter stock and came at a cost to margin.

Retail NZ's Harford expects the Reserve Bank's move will provide a boost but not a rapid one.

The quickest response, he said, may come if lower interest rates put a floor under Auckland house prices and lift sentiment that way.

But that's not certain and the direct benefit of lower interest rates will be delayed for most households given most are on fixed-term mortgages now.

"I think they will have an impact," Harford said of lower interest rates. "But I don't think it will lead to any short-term changes. It's going to be more down the track – six to 18 months."