Retail sales growth data perplexes economists

Retail sales increased by 1.2% in the three months ended December, considerably weaker than the 2.5% growth expected by economists.

Statistics New Zealand figures showed the quarterly growth gave an annual lift of 3.7% for retail sales. Excluding auto sales, annual growth was 3.5%.

ASB economist Daniel Smith said the spending figures were at odds with a host of other drivers and indicators of consumer spending. The outlook for spending this year remained positive.

''Looking at the areas of weakness in the fourth quarter only increases the sense of bafflement. Supermarket sales volumes, the largest individual part of the survey, fell by 0.5% in the quarter - the second quarter of declining sales in this category.''

Compared to December 2012, supermarket sales were up just 0.5%, despite an increase of 4.5% in electronic card spending on consumables and net inwards of migration of 22,500 over the year. Mr Smith said population growth was a key driver of spending in the category.

Non-store and commission-based sales volumes, which included sales at online retailers, had been a key growth area in the survey in the last couple of years - growth was at 18% over the year to September. But sales fell by 10% in the fourth quarter, a perplexing result, he said.

''As the structure of this sector is changing rapidly there may have been changes within the sample, but no explanation is given by Statistics NZ.''

The other area of weakness was also quite surprising, Mr Smith said.

Accommodation sales fell by 2.4% in the quarter, the second successive quarter of weak sales in the category.

Year-on-year declining growth now stood at -2.4%. During 2013, overseas visitor numbers were strong, including the fourth quarter, and guest nights were about 1.3% higher in the quarter than in the previous quarter, according to the ASB seasonally-adjusted estimates.

Other areas were also weaker than expected, particularly food and beverage services which fell by 0.9% in the quarter.

There were two areas of outsized strength, he said.

Recreational goods were up 8.6% in the quarter and clothing was up nearly 10% after being one of the weakest sectors within the survey over the past couple of years.

In terms of retail prices, the survey pointed to continued subdued price pressures. The strong dollar had kept the cost of imported goods down, Mr Smith said.

Forsyth Barr broker Suzanne Kinnaird maintained a ''cautiously positive'' view on the listed retail sector.

Her preferred picks in the retail sector were Kathmandu and Michael Hill International, both with an outperform rating.

Forsyth Barr had a positive view on the outlook with growth driven by increased store numbers, a pick-up in consumer demand and, for Michael Hill, its jewellery care plans.

Ms Kinnaird also had an outperform rating on Pumpkin Patch and Hallenstein Glasson but had a high risk rating on both companies to reflect the near-term risks involved.

Briscoe Group was rated neutral, as the company seemed fully priced.

''Our rating on The Warehouse, which has yet to demonstrate material positive returns from its major store reinvestment programme, is underperform.''


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