Dead cat bounce: Retail spending lifts but for how long?

Retail sales increased in Canterbury where SailGP was held at Lyttelton. Photo / Brett Phibbs for SailGP

The total volume of retail sales rose 0.5 per cent in the March 2024 quarter, after adjusting for price inflation and seasonal effects, according to Stats NZ figures released today.

This followed falls in the previous eight quarters.

”In the March quarter we saw a modest increase in retail activity, with growth across most industries,” business financial statistics manager Melissa McKenzie said.

”Nine of the 15 retail industries had higher retail sales volumes in the March 2024 quarter, compared with the December 2023 quarter, after adjusting for price inflation and seasonal effects.

“Retail sales increased the most in Canterbury and Otago in the March quarter, which could have been influenced by more international visitors, an early Easter holiday, and special events such as SailGP and Warbirds Over Wanaka,” McKenzie said.

Economists were quick to point out that the uptick was unlikely to represent a sustained recovery.

ASB economist Kim Mundy has described the result as a “dead cat bounce” a reference to the stock market saying, when distressed companies see a short-lived price rally.

“Weak demand was still very evident when digging a little deeper,” she said.

“The durables recession is ongoing, with spending across areas like furniture and hardware continuing to fall sharply. Per capita retail activity is also continuing to decline as households limit spending.”

Retail sales were effectively just bouncing along the bottom, said ANZ senior economist Miles Workman.

“All up, the upward surprise in today’s data might sound reassuring at first blush,” he said. “But it’s off an exceptionally weak base. And with headwinds for the consumer persisting, the [first quarter] data is unlikely to mark the beginning of a sharp uptrend.”

Westpac’s Satish Ranchhod agreed.

“Much of the strength in today’s result was a bounce after earlier weakness. The longer-term trend in spending remains weak. Compared to this time last year, spending levels are still down 2.4 per cent. That’s despite population growth of around 2.7 per cent,” he said.

“Much of that weakness has been due to continued pressures on living costs. Nominal spending levels have been tracking sideways, with households getting less in their shopping trollies.

“Overall, we continue to expect softness in spending over the coming months. That’s consistent with recent retail card spending reports and feedback from retailers (many of whom have reported missing sales targets in recent months).”

The biggest contributors to the rise in retail activity in the March 2024 quarter were:

• Food and beverage services – up 2.2 per cent.
• Motor vehicle and parts – up 1.1 per cent.
• Recreational goods – up 4.7 per cent
• Accommodation – up 4.1 per cent.

Thirteen of the 16 regions had higher retail sales values in the March 2024 quarter, compared with the December 2023 quarter, after adjusting for seasonal effects.

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