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Retailing Still Soft In August - Deutsche Bank

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Fuseworks Media
Fuseworks Media

The Electronic Card Transactions (ECT) survey measures the value of transactions on all debit, credit and charge cards undertaken with NZ-based merchants and thus represents a census of approximately three-quarters of all sales that take place in the core retail sector.

As we suggested was likely when we wrote on yesterday's soft July official retail sales report, today's ECT report points to a consumer sector that remained cautious in August. Focusing on spending in the retail sector, spending fell 0.2% mom in August following a 0.1% mom decrease in July. According to Statistics NZ, a decline in spending on durables (-1.1% mom) and consumables (-0.6% mom) weighed on overall spending. Annual growth in total spending fell to 2.9% from 3.6% in July, with spending during the three months to August 0.2% lower than the previous three-month period (see Figure 3). As Figure 3 shows, contrary to earlier this year, the ECT data is now pointing to weaker sales momentum that the official retail sales report. We expect that the August official retail sales report on 14 October will be flat at best.

Spending in the core retail sector (excluding auto sales and services) also fell 0.2% mom in August following a downwardly revised 0.5% mom increase in July. Annual growth eased to 3.1% from 3.6% previously. However, growth in the three months to August was a robust 1.3% compared with the previous three month period

As we wrote yesterday, in short, all the evidence continues to point to a household sector that remains understandably cautious at this point. Abstracting from the impact of the Canterbury earthquake we expect to see a pre-GST volume-driven lift in spending in September and a post-GST price-driven lift in spending in October. But a more resilient real recovery in consumer spending seems unlikely to be seen until employment and income growth strengthen and households become more comfortable with their existing levels of debt.

Today's report leaves us comfortable with our view that the RBNZ will most probably retain the OCR at its present setting for the balance of this year, before resuming policy normalization early next year.

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