Analysts at ANZ explained that Retail spending growth was respectable in Q4, but was once again boosted by car sales.
"... Spending is tracking at a more modest pace, especially in per capita terms. That fits with one of our key assumptions – that households will continue to show restraint, in the face of earlier strong house price gains. We consider that would be a positive thing for the longevity of the economic cycle.
Retail sales volumes rose 0.8% q/q in Q4, on the softer side of expectations. However, it is still a reasonable result, and a similar pace of spending growth as was seen in Q3. That said, in per capita terms, the 0.2% q/q lift is the softest growth in 18 months.
Compositionally, 11 of 15 retail sectors recorded higher sales volumes in the quarter. The biggest lift was once again in motor vehicle sales, which rose 1.9% q/q (up $57m), and follows 3.0% q/q and 3.1% q/q lifts in Q2 and Q3 respectively. Fuel retailing rose 0.9% q/q. But outside of motor vehicles, ‘core’ spending growth was more modest. Total core sales volumes lifted 0.6% q/q, which follows growth of only 0.2% q/q in Q3. Gains were led by pharmaceutical and other store-based retailing (2.5% q/q), accommodation (3.5% q/q) and electrical and electronic goods (2.0% q/q). It was offset by weaker apparel (-2.0% q/q) and non-store-based retailing (-5.6% q/q).
On a regional basis, the upper North Island continues to outperform. On a nominal basis, Auckland and Waikato sales growth rose 1.5% q/q and 3.5% q/q respectively. Auckland sales are up 6.8% y/y (although it is of course experiencing the strongest population growth). That contrasts with the likes of Canterbury, where spending, while rising 0.5% q/q in Q4, is down 2.7% y/y.
Retail spending is not weak. But households are showing more restraint than they typically would in the face of strong house price gains. This is a key reason why the current account deficit has remained contained and domestic inflation pressures relatively tame. We believe this restraint will by-and-large continue, and we actually view it as a positive thing for the longevity of the economic cycle (less boom-bust)."