Most retail sales took a tumble in December quarter, sticky NZ inflation a worry for economist

Retail sales fell in the last three months of 2023, with recreational goods and fashion hit hard.

Three big banks said retail spending was much weaker than expected, highlighting insipid household spending, high inflation and high borrowing costs.

Stats NZ this morning said all seasonally adjusted retail sales in the December quarter amounted to $25 billion, down 1.9 per cent on the September quarter.

All of the 15 industries surveyed had a decline, except for pharmaceutical and “other” store-based retailing.

Liquor, electronics, furniture, groceries, hardware and footwear were all down in the quarter, according to the new retail trade survey.

Recreational goods retailing was down 6.1 per cent or $50 million. Spending on clothing, footwear and personal accessories fell by $42m in the quarter, Stats NZ said.

The Stats NZ data arrived just a day after The Warehouse Group announced the sale of its underachieving Torpedo7 brand for $1.

When jettisoning its languishing Torpedo7 brand, the Warehouse Group outlined some of the struggles Kiwi retailers have faced. Photo / Dean Purcell

That deal has prompted speculation about a possible new grocery chain and broader discussion about the retail sector’s health.

Earlier this week, Kathmandu owner KMD Brands revealed a 14.5 per cent drop in group sales in the six months ending January 31.

And it also followed a flatlining summer performance from Hallenstein Glasson, where sales stagnated despite Black Friday and Boxing Day shopping events.

Stats NZ said the retail trade survey measured sales and stock for businesses providing household and personal goods and services.

That included car yards, petrol stations, supermarkets, cafes and restaurants, and hotels.

The total value of seasonally adjusted retail sales was $30b, down by 1.5 per cent or $459m compared to the September quarter.

Seasonal adjustment very broadly describes efforts to ensure predictable seasonal patterns such as certain fresh produce prices, and freak events such as pandemic lockdowns, do not skew data.

Sticky inflation quagmire

Westpac said the retail stats made glum reading and it expected GDP only rose 0.1 per cent in the quarter, probably well below inflation and population growth.

“I’m not sure if the economy is in a technical recession,” Westpac senior economist Satish Ranchhod said today.

But the R-word aside, the New Zealand economy was undoubtedly stalling, he said, and persistently high inflation was the biggest bogeyman.

Westpac expects Reserve Bank Governor Adrian Orr to keep the official cash rate at 5.5 per cent. Photo / Mark Mitchell, NZME graphic

Strong demand coupled with supply chain blockages and delays were major drivers of that inflation, he said.

Westpac expected the Reserve Bank at next week’s rates decision to hold the official cash rate (OCR) at 5.5 per cent.

Three big problems

Ranchhod said many appliance, furnishing and hospitality businesses were struggling.

The economy faced three major issues now, he said.

“Inflation is coming down but it’s still a lot higher than we want.

“Secondly, the labour market is starting to cool.”

And third, even without an OCR hike, many people with mortgages were still having difficulties, and this curbed household enthusiasm for spending.

On a happier note, Ranchhod said the ongoing recovery in international tourism was providing a boost, especially to the hospitality sector.

“It’s helping to offset some of the weakness in domestic spending.”

High net immigration had also helped ease the labour crisis, Ranchhod added.

“We’re getting less of a contraction in activity than we would have seen otherwise.”

ANZ said the retail sales volumes were far worse than it expected.

“And looking forward, it’s not clear that this will change significantly over 2024,” ANZ senior economist Miles Workman said.

“All up, today’s data shows the retail industry is doing it tough.”

ASB said falls in retail were widespread, with the late 2023 decline especially severe given very strong net immigration.

“Core retail volumes slumped 1.7 per cent ... the largest quarterly drop since the 2021 lockdown,” ASB senior economist Mark Smith said.

Weak retail spending despite strong net immigration suggested Reserve Bank efforts to slow household demand and squeeze inflationary pressures were working, Smith added.

ASB estimates suggested households would be facing up to $70 per week extra in living costs this year.

“The OCR has probably peaked, but there is still a considerable amount of additional tightening in the pipeline with a chunk of mortgage lending set to roll onto higher rates.”