Sales up but analysts remain cautious

Photo / Steven McNicholl

Retail sales perked up in the first three months of this year, despite the February earthquake in Christchurch.

When adjusted for seasonal effects sales rose 2 per cent in the March quarter, after flatlining through the second half of 2010, even with a 2.2 per cent decline in Canterbury.

Core sales, which exclude the volatile car sector, rose 0.9 per cent.

When adjusted for price changes, sales volumes rose 0.9 per cent, the biggest increase since December 2009 and enough to reverse the declines of the previous two quarters.

"Driving the improvement in sales volumes was an increase in sales of furniture, electronic goods and vehicles," said ASB economist Christina Leung.

"The high New Zealand dollar over late 2010 increased the scope for widespread discounting of these imported goods, and this is likely to have encouraged sales."

There had been anecdotes of Christchurch people replacing appliances and major items damaged in the February quake, she said.

Westpac economist Michael Gordon, however, attributed the rise in sales of durables as a return to normal levels after the increase in GST last October encouraged consumers to pull forward purchases they would otherwise have made later in the year.

In dollar terms sales in Auckland increased 3.2 per cent in the quarter and in Wellington 2.9 per cent.

Bank of New Zealand economist Craig Ebert also pointed to increased retail sales in rural areas, including a 3.2 per cent rise in Waikato.

This, he said, mirrored the sharp turnaround in the pastoral sector.

"While its prices were beginning to recover last year, production was hit by vicious storms and serious drought. The weather has since turned extremely favourable in 2011, while export prices have gone from strength to strength, well outpacing the stronger currency."

Gordon said while the renewed retail sales growth was encouraging, the severely depressed level of sales means there is still little joy for retailers.

"Sales volumes are still a whopping 8.5 per cent below their early 2007 high, and are only 1.7 per cent above their trough two years ago," he said.

"Without the conditions for a repeat of last decade's house price boom, consumer spending growth will be more constrained by the pace of income growth in coming years. That implies that a return to the pre-recession level of sales could be several years away."