KEY POINTS:
Retail spending contracted in May as buyers deserted the car yards.
Total sales at $5.47 billion were down 1.2 per cent on April when adjusted for seasonal effects, and were just 1 per cent higher than in May last year, Statistics New Zealand said.
Motor vehicle sales dropped
by $100 million - or nearly 15 per cent - from April levels as the increased cost of essential purchases like food and energy crowded out spending on big-ticket items.
Furniture and floor coverings sales were down 16 per cent.
Core sales, which exclude the volatile automotive sector, were up 0.7 per cent on April but that was entirely explained by a rebound in supermarket and grocery store sales.
They had dropped 3.5 per cent in April but returned in May to the level - around $1.2 billion a month - recorded over the first three months of the year. Compared with May last year, core sales were only 1.9 per cent higher.
"While the bounce in ex-auto retail sales for the month lessens some of the gloom around the weakness of the economy, it doesn't remove the fact that retail spending is falling in real terms," Deutsche Bank chief economist Darren Gibbs said.
"And if we consider where consumer sentiment has fallen to [1991 levels on the Westpac McDermott Miller survey] there looks to be more downside for consumer spending."
First NZ Capital economist Jason Wong said anecdotal evidence suggested sales hit the wall in June.
"Tax cuts in October are one small factor to look forward to but we really need to see a marked fall in oil prices to see any rebound in sales in the near term."
Interest rate relief would be slow in coming because of the lags associated with a high proportion of mortgages being on fixed-rates, he said.
Whether the Reserve Bank started to cut the official cash rate next week or in September was completely immaterial as the average mortgage rate would continue to rise for the rest of the year.
"Furthermore, the housing market downturn has a lot further to run and a higher unemployment rate will soften up overall income growth. Retailers should be budgeting on tough times continuing for a long time yet," Wong said.
Goldman Sachs JB Were economist Shamubeel Eaqub said the Reserve Bank did not need any more evidence of a recession, but rather confidence that inflationary pressures would ease. A gradual neutralisation of monetary policy was critical to avoid a deep and protracted recession.