Phil Borkin, Senior Economist at ANZ, explains that NZ’s stronger-than-expected retail sales growth in Q1 largely reflected some large gains in a small number of components.
“Car sales in particular continue to race ahead, although the hospitality sector continues to perform strongly too. While we expect relative household restraint to remain a dominant theme over the quarters ahead, the strong performance in Q1 leaves us happy with our view that Q1 GDP growth is set to show a decent rebound from the mediocre end to 2016.”
“Retail sales volumes rose a solid (and larger than expected) 1.5% q/q in Q1. Not only this, but Q4 quarterly spending growth was revised up from 0.6% to 0.9%. In per capita terms, spending rose a decent 0.9% q/q, after modest growth of just 0.3% q/q in Q4.”
“Compositionally, nine of 15 retail sectors recorded higher sales volumes in the quarter. This is actually less broad-based than in Q4, despite stronger growth being recorded. It reflects some especially large increases in a small number of sectors, with growth in motor vehicle sales (5.9% q/q) the largest quarterly rise since the series began. Other large gains were seen in the food & beverage series (3.5% q/q) and electrical and electronic goods (5.3% q/q), with the former no doubt reflecting the ongoing strength of the tourism sector. Sales volumes at supermarket and grocery stores fell 1.5% q/q, with higher food prices in the quarter perhaps eating into households’ set budgets.”
“In nominal terms, total retail spending surged 2.6% q/q. That implies a 1.1% q/q lift in the retail sector deflator, the largest quarterly increase since Q2 2008. To be fair, though, it is consistent with the Q1 CPI figures in that it largely reflects lifts in food and petrol prices.”
“While not necessarily evident in today’s figures, our overriding view on the household sector is one of relative spending restraint. In fact, we see this as a necessity in a current account-constrained world (limits on our overseas borrowing) to ensure that there is enough domestic saving to fund our investment needs. And with a limited pool of domestic saving, we can’t have an investment boom and consumption boom at the same time.”