Overnight, we could get the most important economic data from New Zealand for the week. And an important indicator of what we might expect for their dollar in the future!
Unlike most other countries, the Kiwis track retail sales only on a quarterly basis. So we have to use other data as proxies to get insight into consumer demand.
This data is going to be extra relevant because it covers the period right after the first rate cut. So we’ll be looking to see if it had any effect. Also, we want to know if the data is justifying the speculation that there will be another cut by the end of the year.
The outlook from the RBNZ remains less than optimistic, but will consumers have a different view? Or will they at least respond to the actions taken to prop up the economy?
What We Are Expecting
For retail sales, the consensus among analysts is that they will have dropped by -2.4% in the last quarter. This would be a significant drop from the surprising growth of 0.7% in the first quarter.
It’s not unusual to have worse retail sales in the second quarter. This is because of the drop in agriculture activity and the lull before the start of the winter tourism season. However, the projections are for the worst quarterly performance since the financial crisis.
Electronic Card Transactions are one of the proxies we use to gauge consumer sentiment during the quarter, and the average came out to be negative. That was a continuation of the year-to-date negative trend in consumer spending. This would suggest that even if the data comes in as a surprise on the upside, it will still be lower than the prior quarter.
The Underlying Numbers
Projections indicate that core retail sales will grow by 1.5%, a substantial increase over the 0.7% in the prior quarter. There is a good explanation for the discrepancy between the two retail sales numbers. The core figure strips out expenditures on vehicles and car parts.
Most car purchases are made on credit and are of imported vehicles. With the expectation of economic underperformance, people are likely holding off on buying such expensive items. And with a weakening dollar, their price has been increasing ever since the RBNZ started taking action.
Vehicle purchases can be seen as a bellwether of future consumer and investment spending. If businesses, for example, are holding off on buying new vehicles, they are also likely to hold off on other forms of capital expenditure. Presumably, the easing in monetary policy is supposed to make credit more accessible, which would help vehicle sales. But if people don’t have confidence in the future of the economy, and in particular even lower rates are expected in the future, the policy might not have the desired effects.
For the annual retail figure, we can expect growth to slip slightly to 3.0% compared to the 3.3% reported in the prior quarter.
The Trends and Outlook
Another factor to have impacted consumer spending is the rise in gasoline prices. This implies consumers would have less disposable income. If you add the continuing weakness in the housing sector, there isn’t much additional disposable income for people to buy with.
Another set of analysts is strongly suggesting that the retail numbers won’t be so bleak. They project retail sales to stay flat, or maybe slightly positive. Their argument is that the RBNZ’s first rate cut should have helped the economy. In particular, they think it should have encouraged people to buy more things on credit. Just not with credit cards!
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