New Zealand's Retail Sales Fall More Than Forecast

By Tracy Withers

Sept. 12 (Bloomberg) -- New Zealand's retail sales fell more than twice as much as economists' forecast in July, adding to signs the central bank will cut interest rates to revitalize an economy that is in a recession.

Retail sales fell 0.8 percent from June when they rose 1 percent, seasonally adjusted, Statistics New Zealand said in Wellington today. The median estimate of 13 economists surveyed by Bloomberg News was for a 0.3 percent decline.

Falling consumer spending means the economy may not recover from a first-half recession until late this year. Reserve Bank Governor Alan Bollard cut interest rates yesterday and forecast the economy will also contract in the third quarter as the housing market slumps, unemployment rises and a drought cuts farm exports.

``Spending is under an awful lot of pressure and will continue to contribute to weak economic data through the middle part of this year,'' said Stephen Toplis, head of research at Bank of New Zealand Ltd. in Wellington. ``This provides justification for a further reduction of interest rates.''

The yield on a three-month bank-bill futures contract maturing in December fell 3 basis points to 7.27 percent at 11:20 a.m. in Wellington as investors increased bets Bollard will cut the official cash rate in October. A basis point is 0.01 percentage points.

The New Zealand dollar bought 65.29 U.S. cents from 65.28 cents immediately before the report.

Profit Slump

Bollard said yesterday the economy is experiencing a ``marked slowdown, led primarily by the household sector.'' He cut the official cash rate by a half point to 7.5 percent and urged banks to pass on lower borrowing costs to customers. HE also cut the benchmark by a quarter point in July.

``We've got room to move,'' Bollard said in an interview from Wellington yesterday. ``We're in a loosening mode.''

The economy contracted in the first quarter and Bollard said yesterday New Zealand is now in recession.

The central bank said the economy probably shrank 0.2 percent in the second quarter and will contract 0.3 percent in the third quarter.

House sales have fallen to a 16-year low, the jobless rate has risen to a two-year high and exports have dropped for two quarters as a drought curbed dairy production. Dairy products are the nation's largest export.

Profit Slump

The high cost of basic items has curbed spending at companies such as Warehouse Group Ltd., the nation's largest discount retailer. The company said today profit fell 21 percent in the year to July as margins were squeezed. Fourth-quarter sales fell 2 percent.

``A clear shift in consumer sentiment occurred during this period, which placed significant pressure on retail sales,'' Chief Executive Officer Ian Morrice said.

Gasoline prices reached an all-time high in July. Food costs rose 7.6 percent from a year earlier and the benchmark interest rate was at a record until Bollard unexpectedly cut borrowing costs on July 24 for the first time in five years.

Core retail sales, which exclude cars, fuel and workshops, fell 0.2 percent from June when they gained the same amount, today's report showed. Economists expected a 0.3 percent increase.

Retail sales fell in 13 of the 24 store categories measured in the report.

Car sales dropped 5.3 percent. Supermarket and grocery sales, which make up one-fifth of all retailing, fell 2 percent. Furniture, hardware and footwear sales also declined.

Department store sales rose 5.9 percent and clothing stores gained 9 percent. Fuel and appliance sales also increased.

Car sales have fallen in five of the past seven months and are 19 percent less than a year earlier.

The trend series for vehicle sales, which adjusts for irregular events, is close to a seven-year low, the statistics agency said.

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