KEY POINTS:
Shoppers around the country have kept their wallets and purses closed since the New Year, as jitters about the economy intensify and spending has reduced to a trickle.
Retail sales fell a seasonally and inflation-adjusted 1.2 per cent in the March quarter, with vehicle sales bearing the brunt
of the lurch down.
The New Zealand dollar, already in steep decline since dire jobs data last Thursday, dived half a cent to US75.65c on the news.
Today's data greatly increases the prospect of a cut in official interest rates, possible as early as June 5 when the Reserve Bank next reviews the Official Cash Rate.
The figures published by Statistics New Zealand (SNZ) today are far worse than expected, with the median in a Reuters poll of economists having been for a fall of 0.3 per cent.
The seasonally adjusted fall in volumes was the largest in 11 years, with the main cause being a 6 per cent fall in volumes of vehicle sales, SNZ said.
When vehicle-related industries were excluded, the core retail group had a 0.2 per cent rise in volumes, boosted by a 3.3 per cent increase in supermarket and grocery store sales volumes.
Of the 24 industries in the survey, 17 had decreased sales volumes, while most of the remaining seven industries had only small increases. The last time so many industries had decreased volumes was the June 1998 quarter.
For March, seasonally adjusted total retail sales were down 1.2 per cent, and followed a fall of 0.6 per cent in February. The core retailing group fell 0.5 per cent or $21m in March.
Following recent data showing a big fall in jobs, today's retail figures are further evidence the economy is struggling and could strengthen the case for the Reserve Bank to cut official interest rates earlier than it had previously expected to.
Adjusting just for seasonal factors, total retail sales in the March quarter were unchanged from the December quarter, when there had been a 1.9 per cent increase.
The fall in the latest quarter included a 6.9 per cent or $147m fall in vehicle sales.
That was largely offset by a 4.7 per cent or $163m rise in supermarket and grocery store sales, and a 4.7 per cent or $81m increase in vehicle fuel sales.
The rise in fuel sales was driven by a 3.9 per cent rise in prices, with volumes up just 0.1 per cent.
In the past three quarters, the fuel sales trend had risen at an average of 7.9 per cent a quarter, its fastest rate since the start of the series.
In contrast, the fuel sales volume trend had eased following a period of strong growth at the end of 2006 and start of 2007, SNZ said.
The rise in supermarket and grocery sales was the largest since the December 2003 quarter.
The March quarter rise resulted from a 2.5 per cent rise in January and a 1.6 per cent rise in February, followed by a 1 per cent decrease in the March month.
Lower sales were recorded by 15 of the 24 industries, making the March quarter the first since June 1998 to have had more industries with decreases than increases, SNZ said.
Core retail sales were up 0.9 per cent, largely due to the increase in supermarket and grocery store sales.
"Things are going from hitting the skids to hitting a brick wall," said BNZ economist Craig Ebert.
"As weak as these are, the indicators heading into Q2 are even weaker. This is not a one-off adjustment, it's part of a trend."
The jobs news sent wholesale interest rates skidding down nearly a quarter of a per cent in anticipation of Reserve Bank action next month, or in July, and banks immediately cut key mortgage lending rates.
Kiwibank chief executive Sam Knowles said today more interest rate cuts were likely soon. Bank sources said a cut was likely as early as tomorrow.
The New Zealand dollar, already in steep decline since dire jobs data last Thursday, dived half a cent to US75.65c on the news.
"Nice and ugly," said Shamubeel Eaqub, economist at Goldman Sachs JBWere said of today's figures.
"Everything is pointing to a contraction in GDP in the first quarter, and with confidence indicators where they are now it seems like we will have this weakness spreading into the second quarter as well.
"The risk of recession is very high, the Reserve Bank cannot afford to ignore these signals."
"We think monetary policy is far too tight given the stage of the economic cycle, and interest rates need to be neutralised, and we think June is the right time to start easing."
ANZ National economist Khoon Goh said today's data was a clear signal households were under severe stress and the higher cost of living was having a severe impact on retail sales.
"The indications are that first-quarter GDP contracted and the market will be looking for an early easing from the Reserve Bank of New Zealand as a result."
However, Deutsche Bank economist Darren Gibbs said it would take more than one quarter of soft data for reserve bank governor Alan Bollard to ease given the inflation outlook for the next six to nine months is substantially worse than what was expected a couple of months ago.
- NZPA