Car buyers hit the brakes

Car sales slumped 5.8 per cent in February as cost-conscious consumers spent their money on increasingly pricey staples.

ANZ National economists said Statistics New Zealand retail figures for February, published yesterday, showed price rises for core staples, such as food, were siphoning off discretionary income from other retail areas.

The figures showed car sales fell 5.8 per cent, or $41 million, over the previous month, after falls of 0.6 per cent and 2.5 per cent in January and December.

This pushed total retail sales down by a seasonally adjusted 0.7 per cent on the previous month, compared with rises of 0.3 per cent in January and 0.1 per cent in December.

The February figure was lower than market expectations, with a Reuters poll predicting an increase of 0.3 per cent.

UBS senior economist Robin Clements said sales of big-ticket items such as motor vehicles were, in general, good indicators of the health of consumer cash flows.

According to Land Transport New Zealand figures, new car registrations fell 12.7 per cent between September 2007 and February 2008. Used import registrations fell 3 per cent for the same period.

For the first three months of 2008, new car registrations were up 3.6 per cent, but used imports fell 8.2 per cent, according to figures from the Independent Motor Vehicle Dealers Association, which represents used car dealers.

"The market is slow and slowing - a result of macroeconomic influences, like interest rates, food prices, petrol prices, the soft housing market and now the drought," chief executive David Vinsen said.

Automobile Association motoring affairs general manager Mike Noon said the fall in used car sales could indicate that lower to mid-income consumers were especially feeling the strain on their discretionary spending.

Taking away the automotive sector, core retail spending rose 0.2 per cent in February.

Supermarket and grocery sales were the main contributors to the rise in core retail spending, rising 1.6 per cent, or $19 million.

ANZ National Bank economists suspect this was mainly the result of the 0.8 per cent food price increase for the month.

They said a clear gap was opening up between spending on essentials, such as food and fuel and other types of retailing.

Only food, petrol and some tourism-linked sectors experienced growth, while the other sectors remained flat. Fourteen of the 24 store types recorded lower sales for February.

This month, listed debt collector Veda Advantage said default on debt payments had risen 27 per cent for the first two months of 2008, compared with the same period last year.

The main areas of default were credit cards, hire purchase and telecommunications companies.

Mr Clements said that, while monthly retail data could "bounce around", the collapse of consumer confidence, which began to gain momentum only at the end of last year, suggested slowing of retail sales was unlikely to bottom out soon.

He said this year's tax cuts would be too little, too late to have a significant beneficial impact during the current cycle.

Thanks largely to the drought, causing farmers to curb spending, Waikato had the biggest retail sales fall at 4 per cent.

Auckland's retail sales fell 3.2 per cent, mainly because Aucklanders' retail spending is being pared back by cost of living pressures and the slowing house market, according to ANZ National.

Wellington retail spending rose 0.7 per cent, up $4 million.

Canterbury was down 1.4 per cent, or $10 million, but retail spending in the rest of the South Island rose 1.9 per cent, or $13 million.

Further signs of a slowing economy were seen yesterday in the monthly service sector index.

The Bank of New Zealand-Business New Zealand's performance of services index fell to 50.8 in March from 55.6 in February, the lowest reading since the survey began in April 2007.

A reading above 50 indicates an expansion.