Retail sales figures may mislead at first look say economists

Today's better-than-expected retail sales figures for August may be deceptively robust economists say, but they still show the domestic economy is in fair shape.

Seasonally adjusted retail sales increased by 0.6 per cent from July to August compared with 1 per cent from June to July, Statistics New Zealand (SNZ) said today.

Economists polled by Reuters had, on average, expected a figure of 0.3 per cent.

But Bank of New Zealand head of market economics Stephen Toplis warned the unexpectedly strong figure should be regarded with caution.

Mr Toplis said SNZ had altered the way new businesses were incorporated into the survey, which may have artificially boosted August sales figures. This could have accounted for the unprecedented 4.5 per cent or $14 million increase August sales for the cafes, restaurants and takeaways store type -- a significant contributor to the result. Sales for the group increased by 1.8 per cent in July.

Despite any "inherent data discrepancies" in today's figures, Mr Toplis said the overall message remained the same -- "Householders are spending up large and the domestic economy is humming".

Today's figures showed seasonally adjusted core retail sales, excluding motor vehicle services and retailing, increased by 1 per cent in August.

Overall, seasonally adjusted sales across all store types at $4.44 billion were $27 million up on the July figure.

Motor vehicle sales showed a big fall in August, dropping by 3.1 per cent compared to an increase of 2.9 per cent the previous month.

The decrease in dollar terms was $20 million, the largest drop among the five of 15 store types to show falling sales.

Seasonally adjusted motor vehicle services maintained fairly steady growth, increasing by 2.6 per cent from July to August compared to a 2.3 per cent increase the previous month.

Motor vehicle services recorded the largest dollar value increase of the 15 store types at $16 million.

Food retailing sales increased by 0.9 per cent from July to August compared to 0.3 per cent from June to July.

On a regional basis, seasonally adjusted retail sales increased in four of the six regions, with the North Island (excluding Auckland, Wellington and Waikato regions), and the Canterbury regions showing the largest increases -- both up by $7 million in dollar terms.

Retail sales in Auckland were unchanged, but Wellington showed the largest percentage increase of 1.3 per cent. The South Island excluding Christchurch showed a decrease of 1.2 per cent.

SNZ said at $4.26 billion, actual sales for August were 4.1 per cent up on the same month last year.

The ASB Bank while also wary of the effects of SNZ's change in methodology said the strength of today's figures was expected to continue until Christmas.

The bank attributed some of the strength in today's figures to the buoyant housing market which "creates wealth effects that translate into higher consumer spending".

"ASB's own figures suggest that lending growth is still very strong and will contribute to the spending momentum", the bank said in a statement.

ASB said other positive influences included a strong labour market, improving business and consumer confidence, recovering tourist flows, high net migration, and the appreciating New Zealand dollar, which made imports relatively cheaper.

ASB said today's data would increase the likelihood of the Reserve Bank bringing forward plans to tighten interest rates.

- NZPA