Retail sales fell 0.1% in the September quarter, a smaller drop than we expected. Retail spending remains soft, but is likely to firm over the coming months.
- September quarter retail sales (volume of good sold): -0.1% (Prev: -1.2%)
- Westpac f/c: -0.5%, Market: -0.5%
- September quarter nominal retail sales: -0.7% (Prev: -1.4%)
While not quite as weak as expected, September was another soft quarter for New Zealand’s retail sector.
Nominal retail spending fell 0.7% in the September quarter, with the volume of goods purchased down 0.1% (we had expected a sharper 0.5% fall in the volume of goods sold).
Spending in the September quarter was boosted by a rise in vehicle purchases, which can be lumpy on a quarter-to-quarter basis (for instance, this month’s rise followed a sharp drop last quarter).
However, looking under the surface, the softness in New Zealanders’ spending appetites remains clear. Spending in core (excl. vehicles and fuel) categories was down 0.8% over the past three months and is down 2.8% over the past year.
Looking at the longer-term trends in the retail sector, sales have been trending down over the past year as households have wound back their spending in response to increases in living costs and high interest rates. There has been particular softness in discretionary spending areas, like purchases of household furnishings and spending in bars and restaurants.
What’s the outlook for Christmas and beyond?
We expect that the September quarter will be the low point for retail sales. Tax cuts were rolled out in late July. In addition, the financial headwinds that have squeezed household spending power over the past year are now easing, with inflation dropping back and interest rates falling. It will take time for the full impact of those changes to pass through to households’ back pockets. However, confidence is on the rise.
Against that backdrop, we expect to see retail spending gradually pushing higher as we go into the holiday shopping season, with a more meaningful rise expected through mid-2025.
Implications for GDP growth
While firmer than expected, today’s figures were broadly in line with the continued softness in economic growth that we’re forecasting in the September quarter (we’re forecasting a 0.2% fall in GDP over the quarter). We’ll take a closer look at how our forecast for GDP growth is shaping up over the next couple of weeks as additional data on September quarter activity is released.
