Weaker sales nip at retailers

Soggy weather dampened retail sales in December, continuing the softening trend since the middle of last year.

Statistics New Zealand reported yesterday that after adjusting for the normal seasonal bounce, sales were 0.4 per cent lower than in November. Analysts had expected a small increase.

Lower petrol prices had some impact - automotive fuel sales were down 5.3 per cent - but even when the volatile automotive sector is excluded, December retail sales were down 0.3 per cent on November.

Only 10 of the 24 store types posted increases.

For the December quarter as a whole, sales were up 1.1 per cent, seasonally adjusted, on the September quarter, building on that quarter's 2.5 per cent surge. Most of the increase, 0.7 percentage points, was higher volumes rather than higher prices.

But it was still the weakest quarterly increase for two years.

Deutsche Bank chief economist Ulf Schoefisch said growth in retail sales had been comparatively soft since the outsized gains in June (1.4 per cent) and July (1.2 per cent). Since then the average monthly increase has been 0.2 per cent.

Retail sales in the December quarter were 7.4 per cent up on the same period in 2003.

Over that year, household incomes from wages and salaries were up 7 per cent, reflecting the combined effect of more jobs, longer hours and higher wages.

The gap between the two suggested consumers had funded part of the extra spending through borrowing, Schoefisch said.

But the gap between growth in incomes and in spending seemed to be narrowing, a sign that the turbocharged boost to spending from people feeling wealthier as a result of higher house prices could be waning.

Economists expect the overheated economy to cool this year under the influence of last year's interest rate rises, slower population growth, a flattening of house prices and a high exchange rate.

But Bank of New Zealand economists do not think consumer spending is slowing as much as it needs to.

BNZ economist Craig Ebert said the anecdotal evidence suggested a pick-up in retail spending since the new year.

Friday's employment figures had highlighted the extreme buoyancy of the labour market, evident also in the accelerating wages growth reported last Tuesday.

And while Reserve Bank Governor Alan Bollard had raised the official cash rate 150 basis points last year, inflation increased from 1.5 to 2.7 per cent over the same period, so the increase in real interest rates was only 30 basis points and, said Ebert, only to a level that the bank considered neither restrictive nor stimulatory.