N.Z. Retail Sales Fall, Adding to Recession Signs

By Tracy Withers

July 14 (Bloomberg) -- New Zealand's retail sales fell by the most in more than four years in May as car sales slumped, adding to signs the economy has slipped into a recession.

Retail spending slumped 1.2 percent from April when it increased the same amount, Statistics New Zealand said today in Wellington. The median estimate in a Bloomberg News survey of 12 economists was for a 0.1 percent decline.

Consumer confidence has fallen to a record low, crimping spending at retailers such as Hallenstein Glasson Holdings Ltd., as higher food, fuel and credit costs strain household budgets. The economy contracted in the first quarter, and eight of 13 economists expect it also shrank in second, pushing New Zealand into its first recession since 1998.

``Retailers should be budgeting on tough times continuing for a long time yet,'' said Jason Wong, director of economics and strategy at First NZ Capital Group in Wellington. ``The story is very familiar now, with higher interest rates, higher food petrol prices and the significant housing market downturn more than of robust growth in incomes.''

The New Zealand dollar bought 75.97 U.S. cents at 11:40 a.m. in Wellington trading from 75.99 cents immediately before the report.

Car sales plunged 15 percent from April, the biggest decline since March 1997, the statistics agency said. Excluding cars, spending would have been little changed. The unadjusted value of car sales was the lowest since May 2001.

Profit Declines

Core retail sales, which exclude cars, fuel and workshops, rose 0.7 percent from April, the first increase in three months,. Economists expected a 0.5 percent gain.

Hallenstein Glasson last week said full-year profit will fall at least 28 percent as sales at its clothing stores drop. The Auckland-based company joins larger rivals Warehouse Group Ltd. and Briscoe Group Ltd. in slashing earnings targets as slumping consumer confidence crimps winter sales.

A confidence measure compiled by research group Roy Morgan fell to a record low in the two weeks ended June 29. Forty nine percent of 1,119 people surveyed said it was a bad time to buy a major household item, up from 45 percent in a poll completed two weeks earlier, the company said on July 7.

Slowing consumer spending, which makes up 60 percent of the $104 billion economy, adds to signs Reserve Bank Governor Alan Bollard will cut interest rates from a record-high 8.25 percent this year.

Gasoline Costs

The central bank chief said on June 5 that cooling domestic demand will help curb inflation, making it ``likely'' he will cut borrowing costs. Twelve of 13 economists expect a reduction before Sept. 30 and one forecasts a cut in October.

New Zealanders paid 7 percent more for gasoline in the final week of May compared with a month earlier. Food prices rose 1 percent in May from April.

Retail sales fell in May at 12 of the 24 store categories measured in today's report. Purchases at furniture stores, bars and clubs declined. Sales from fuel outlets increased 3.2 percent.

Supermarket and grocery sales, which make up one-fifth of all retailing, rose 3 percent. Department store, hardware and accommodation sales also increased.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.