Retail sales rose by 0.7% in the December quarter. The result was below our forecast but close to market expectations. Market reaction to the release was muted.

  • Q4 real retail sales (volumes): +0.7% (Prev: +1.7%) Westpac f/c: +1.4%, Market f/c: +0.8%
  • Q4 real core sales (volumes): +0.5% (Prev: +1.9%)
  • Annual change – total real retail spending (volumes): +3.3% (Prev: +4.5%)

Retail spending rose by 0.7% in the December quarter. That was below our forecast, but close to the average market forecast for a 0.8% rise.

December’s moderate rise followed a large 1.7% increase last quarter, which leaves us with a picture of firming spending growth through the back half of 2020. Those gains have been supported by the strengthening of the housing market and growth in real incomes. However, a slowdown in population growth has constrained the increase in overall spending.

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Spending patterns were mixed across categories. On the upside, there were continued gains in areas like electronics and recreational goods.

However, spending on groceries and in department stores declined, reversing their strong September quarter gains.

Price growth in the retail sector remains muted. Total prices were up 0.4% over the quarter, and flat over the past year. Core (ex-fuel prices) have been a bit stronger, rising 0.6% in the December quarter and 0.7% over the past year.

Implications:

Today’s result signals some downside risk to our forecast for 0.6% growth in December quarter GDP. We’ll firm up that number as other partial indicators are released over the next couple of weeks.

Outlook:

Retail spending levels will be dampened by Coronavirus-related disruptions in early 2020. Sectors linked to international travel, like hospitality, will be particularly affected.

However, we expect that this will give way to firmer spending growth later in the year, supported by the combination of low mortgage rates, a pickup in the housing market and increases in government spending.

Market reaction:

There was very little response to today’s data in either the NZ dollar or interest rate markets.

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