Last week’s data provided further evidence that consumers are finding their feet again, following a protracted retreat over the last two years.
Retail sales held their ground in June, following gains of 1.2% in the previous two months. Clothing sales slowed as expected in June, as unusually cold weather saw spending on winter woollies brought forward to May. However, appliance sales were up nearly 10%, which is likely to be a product of the pickup in housing market activity.
That left retail sales volumes up 0.4% for the June quarter, a welcome change after six consecutive quarterly declines. Rising net migration, an improving housing market, an increasing punch from prior interest rate cuts and the April tax cuts have all helped to arrest the decline in sales volumes. But retailers won’t be jumping for joy just yet – sales remain at very low levels. On a per person basis, sales volumes have dropped 8.7% from their peak in early 2007.
The good news is that we expect growth off this low base. Electronic transaction data point to further resilience in spending in July, and consumer confidence surveys suggest this could be carried through to August as well. More significantly, the ratio of inventories to sales fell to record lows in Q2, as retailers continued to run down stocks, particularly motor vehicles and other durable goods. With sales now turning up, along with expectations of more growth ahead, NZ – along with many other developed economies – is likely to benefit from the restocking phase of a classic inventory cycle. This is an important part of our forecast for a return to GDP growth in the second half of this year, and indeed it could well be stronger than we have allowed for.
