Big fall in retailing predicted

Press, 6 November 1984, Page 3

Big fall in retailing predicted

By

MICHAEL HANNAH

in Wellington A sharp drop in retail trading next year is predicted in the National Bank’s latest survey of business prospects. The domestic downturn is expected to affect manufacturers who produce for the domestic market. The bank says that manufacturers continued to report that orders were satisfactory, although they realised that next year orders may not be in such good shape. The domestic outlook contrasted with very good prospects anticipated by export manufacturers, and with increased milk and lamb production. In the latest survey, run in October, the bank found concern in the retail sector that, once a number of oneoff factors maintaining sales had passed, there could be quite a sharp cut in consumer expenditure. A rise in retail sales in November was expected as part of the seasonal pattern, but more respondents to the survey reported that busi-. ness conditions were worsening than improving. Almost half of the respondents also reported that stock levels were too high, and the bank commented that this was the highest proportion for more than a year. Almost a third of respondents wished to reduce stocks into the first quarter of the new year. The bank noted some contrast with manufacturers’ expectations, especially as manufacturers did not regard stock levels as too high, nor had they noticed any reflection of stock levels in orders from the retail sector. There was a realisation that orders may not be in such good shape next year, although manufacturers producing for the domestic market reported low levels of finished stocks, and so a reasonable level of activity was likely to be sustained "for some time yet.” , On the export scene, the bank reports that trading conditions were buoyant and

immediate sales prospects looked very good for manufacturers with an export orientation. Few exporting respondents expected to run their plant at below normal capacity, and many above, whereas those producing for the domestic market expected capacity use to run at “roughly normal” levels. About 40 per cent of respondents expected sales volumes to rise through 1985, but the reasonably strong-investment spending to date was expected to taper off into 1985, as manufacturers expected to either maintain or slightly reduce capital expenditure budgets over the coming year. The survey found that an. increase in milk production and a higher lamb slaughter than a year ago were likely, as above average pasture growth and good lambihg and calving percentages were reported. However, farm input costs had risen during the price freeze, mainly because of fuel price rises and increases in the cost of fertiliser and machinery, reflecting their imported content. The bank said that farm input costs were expected to continue to rise during the next year at a rate at least in line with the general rate of inflation. On monetary conditions, the bank noted the higher interest rates attracted by the latest stock tenders caused by tight liquidity conditions in late September. These conditions had eased because of an unanticipated flow from offshore funds, the bank said. It also noted the recent rise in Treasury Bill rates, as a prelude to tendering Treasury Bills. “When the transition to tendering is completed, the Government will have in place the most realistic mechanism for dealing with the liquidity which flows in large part from its own Budget deficit,” the bank said. “The other side of the equation, the reduction of the deficit itself, remains to be dealt with in the Budget on November 8.”