The impacts of the global financial crisis include not only tangible impacts on New Zealand such as lower exports and reduced employment opportunities, but also impacts on consumer sentiment. Most media paint a picture of widespread downturn, negative business sentiment, and worried householders and consumers. But the December 2008 quarter and January 2009 monthly statistics suggest this picture should be tempered by an understanding of the geographical pattern of negative consumer sentiment.

Overall, retail sales have softened recently across a range of industries. The latest monthly data for January 2009 show that the value of retail sales fell by 3.7 percent compared to January 2008. Over the year to January 2009, retail sales rose by 0.6 percent in nominal terms to just over $65,770m.

In seasonally-adjusted terms, retail sales fell by 1.1 percent in the December quarter. While the largest industry of supermarkets and grocery stores saw a rise of 2.2 percent over the quarter, collectively sales in the top five core industries declined. A 5.7 percent ($257m) decline in retail sales in the motor vehicle sector was also a substantial contributor to the overall fall in quarterly sales. The biggest declines in that sector came from sales in the motor vehicle retailing industry (-5.3 percent) and fuel retailing (-8.2 percent).

But one of the most striking features in the retail sales statistics is where, geographically speaking, the greatest slowdowns have occurred. The slowdown has mainly pushed Auckland into negative territory, and Waikato to a lesser degree, while retail sales in the remainder of the country have continued to grow.

Auckland experienced lower nominal retail sales than the same month a year ago for the third month in a row, with a 1.9 percent decline in December 2008. The Waikato region just slipped into negative territory (-0.1 percent) in December. We put the negative results in Auckland down to the collapse in a housing market with a high exposure to apartments, and its sensitivity to the volume of international trade and tourism. The negative result for Waikato is likely to lie in it catching a cold from the chill going through Auckland.

But Wellington (5.5 percent), Canterbury (3.8 percent), the non-metropolitan North Island (3.3 percent), and South Island regions (2.1 percent) continued to deliver reasonable sales growth compared with December 2007. With the exception of the non-metropolitan South Island region, it is likely that the others experienced real growth in the volume of sales. The last few quarter’s data suggests a slowing trend, with each dropping about one to two percentage points. But the simple message is that any contraction is primarily an Auckland phenomenon, while there is softening growth across the rest of the country.

Given where the people, and viewers, reside it is not surprising that the media has made a lot of the negative impacts experienced in this area. But from a retail sales point of view, there is still considerable buoyancy in non-motor vehicle sales in the rest of the country. This is likely to reflect the stable levels of employment, and lower exposure to the softening apartment market, that are supporting both what consumers have to spend and how they feel about their prospects. While it is important not just to react to the global financial crisis and its local impacts, nor do we want to be globally negative and jinx the positive sentiment that is apparent around the country.

The overall forecast in the near-term is dominated by negative sentiment in Auckland. But the overall figure does not capture the more positive picture for the remainder of the country. Real retail sales in the December 2008 quarter were some 3 percent below year-earlier levels. In value terms this represented an increase in turnover of just 1.4 percent over the year.

Further contraction in the retail sector is inevitable over the coming months. We forecast real retail sales to remain below year-earlier levels for most of this year. Taking into account price inflation, this takes the value of sales turnover to be (just) above year-earlier.

While real retail sales are forecast to contract throughout 2009, we expect the worst news will have passed and the Auckland housing market will have hit its lowest point. We expect real retail sales growth in the year to March 2011 to push into positive territory. Over the longer term, the recovery will gain strength towards the end of 2011, and this will contribute to real retail sales expanding by nearly 1.0 percent by in the year to March 2012.

 - reprinted from BERL Forecasts, March 09