Sales ease fears of recession

Retail sales jumped in February, easing fears the economy has slipped into recession.

Total sales were 1.9 per cent higher than in January when adjusted for seasonal effects, Statistics New Zealand said, after a flat out-turn in January and a 0.2 per cent fall in December.

But Statistics NZ said that the seasonally adjusted figure looked "atypically high" and it should be treated with caution.

The financial markets gave the figure enough credence to drive the dollar higher by the best part of a cent to around US62.30c and pushed the expected start of the interest rate cuts back from the third to the fourth quarter of the year.

Excluding the volatile automotive sector, the monthly increase was 1.4 per cent.

Statistics NZ's trend measure, which aims to smooth out the effects of seasonal and irregular events, showed a slight up-tick to 0.4 per cent after four months of sales growing at 0.3 per cent.

The increase in sales was widespread with 17 of the 24 store types recording increases, led by car yards, which were up 5.2 per cent.

That is at odds with data on used car registrations which fell in February, for the third month in a row.

Bank of New Zealand economist Dean Ford said: "While one can always pick holes in a single monthly piece of data, there is no denying the strength of this result."

It called into question talk of recession and midyear interest rate cuts by the Reserve Bank, he said.

Consumers might be trying to beat price rises to come as a result of the lower dollar pushing up the cost of imported goods.

UBS chief economist Robin Clements questioned how a recovery in consumer spending was consistent with a softening labour market, a cooling housing market and petrol prices at record highs.

The bounce in retail sales is also at odds with the gloom from retailing firms in Tuesday's quarterly survey of business opinion by the Institute of Economic Research.

An increasing proportion of retailers reported declining sales and even more expected declines in the three months ahead.

ANZ National Bank acting chief economist Cameron Bagrie expects consumers to follow their Australian counterparts into a period of consolidation.

Household balance sheets were stretched and the effects of wealth gains for the housing market were dissipating, he said. But fears of a recession were overblown.