Retail in the pink again but discount is the price

Vehicle sales rose 4 per cent. Photo / Supplied

Some colour returned to the retail sector's cheeks in June, core sales rising a brisk 1.5 per cent, boosted by aggressive discounting after flat or declining sales in April and May.

Total sales, which include the more volatile vehicle sector, rose 0.9 per cent, twice as much as the market had expected.

For the whole June quarter, total retail sales had their strongest quarterly increase in volume since March 2007, rising 1.3 per cent where the market had expected 0.3 per cent.

"What really caught us out this quarter was the level of discounting that is taking place to generate these sales," Deutsche Bank chief economist Darren Gibbs said.

In dollar terms, retail sales in the quarter were up 0.5 per cent (seasonally adjusted), the same increase as the March quarter. But the retail trade deflator fell 0.8 per cent, the biggest fall in seven years.

Appliance sales were up 3.4 per cent from the March quarter by volume, but down 0.5 per cent in dollar terms.

ASB economist Christina Leung said this was in line with June quarter CPI data which had shown price declines in electronic goods beyond what New Zealand's higher dollar late last year would have suggested.

Motor vehicle sales were up 4 per cent in the quarter, nearly half of the overall increase in retail sales.

Goldman Sachs JB Were economist Philip Borkin said that could be an early sign of a splurge before the GST increase on October 1. But with a sluggish housing market, tight credit and waning migration, growth in consumer spending would be slow.

"There is also a limit to how much further retailers can discount, given already challenging profitability, although this does depend on the performance of the New Zealand dollar," Borkin said.

Gibbs said the implications for the economic outlook were modest.

"The strength seen in the report was driven by aggressive discounting - clearly a function of the weak underlying state of the sector - and was concentrated in spending on imported goods like motor vehicles and appliances, rather than domestically produced goods and services."

The retail figures stand in contrast to the weak tone of recent economic data, including house sales going sideways at historically low levels, manufacturers reporting the thinnest order books for more than a year and declining export commodity prices.