Last week’s drop in retail sales has confirmed for us that the September quarter will be the ugly sister among the four quarters of 2012. While the early indicators are that the December quarter won’t win any beauty pageants, October data have shown signs of improvement. Markets have acted on this Q3 weakness by pricing in a higher probability of interest rate cuts by the RBNZ. However, our view is that with low mortgage rates already priming the housing market, the RBNZ will not want to risk further stoking the fire by cutting rates.
Real retail sales fell 0.4% in the September quarter, following a 1.3% rise in the June quarter. Sales were up a modest 2.3% on a year ago, although this comparison is muddied by the Rugby World Cup last year.
Supermarkets and grocery store sales fell 1.5%, accounting for most of the fall in total sales. There were also sizeable falls in recreational goods (-3.6%), electronic goods (-1.5%) and accommodation (-3.2%), although none of these were outside the typical quarterly ranges for these groups. The most significant increase was in hardware and building supplies (up 4.2%), which can plausibly be attributed to post-quake rebuilding in Canterbury.
The regional breakdown suggests that Canterbury’s post-quake recovery continued to power ahead, with a 3.5% rise in sales (by value). Spending in Canterbury now appears to be running above its pre-quake trend – the region accounted for 13.8% of national retail sales, compared to 13.3% just before the September 2010 quake. There were also gains in the other main centres (Auckland +1.7% and Wellington +0.6%), but the rest of the country was seen as very weak.