Reserve Bank governor Graeme Wheeler has said he has room to cut interest rates if needed and his next review is on December 6. Markets were pricing in a 24 per cent chance of a cut to the official cash rate next month.
The kiwi dollar dropped to 81.54 US cents after the numbers, from 81.91 cents immediately before the report was released.
"Shoppers spent less in just over half of the retail industries this quarter," industry and labour statistics manager Blair Cardno said. "The only industry we saw them spending significantly more in was hardware, building, and garden supplies, which was lifted by higher sales in the Canterbury region."
When price effects are removed, the volume of total retail sales fell 0.4 per cent, with shoppers buying less in nine of the 15 retail industries.
Looking at the longer-term picture, the trends for both total sales values and volumes had eased back since the strong growth in 2011, said Cardno.
ANZ Bank economist Mark Smith said the fall in retail volumes was weaker than market expectations.
"We expect the slowing momentum in the retail sector to be broadly representative of the rest of the economy, with a weak Q3 GDP result in store," said Smith.
"Retail trade data is one of the earliest published components for GDP and is suggestive of a further easing in momentum in Q3. Despite signs of life in the housing market, we expect a limited flow-through into consumer spending, with the fragile employment outlook and ongoing household deleveraging proving to be more influential determinants. In such an environment the risk profile for OCR moves is to the downside," he said.
Figures out last week showed New Zealand's unemployment rate unexpectedly rose to a 13-year high of 7.3 per cent in the September quarter.
ASB economist Daniel Smith said the bank had expected a modest increase in retail sales, mostly based on a strong rebound in fuel.
The strong fuel sales apparent in electronic card spending data failed to show up at all though, he said.
"Other sectors were patchy, but we see no fundamental reason for the weakness in supermarket sales, the prime driver of the weak overall result, to continue in coming quarters.
"Retails sales volumes remain 2.6 per cent higher than a year ago, when the Rugby World Cup was on, and we expect moderate growth in spending to continue."
Electronic payment operator Paymark said yesterday that spending across its network rose 0.3 per cent last month, helped by a significant increase in housing-related expenditure.
And figures out last week from Statistics New Zealand showed electronic card spending increased a seasonally adjusted 0.4 per cent in October, led by fuel, motor vehicle related spending and durables.
-nzherald.co.nz / Businessdesk
