New Zealand retail trade volumes were again weak in the three months to September, falling 0.1 percent on the quarter after dropping 1.2 percent in the three months to June. The volume of sales fell 2.5 percent on the year after dropping 3.6 percent previously. Officials at the Reserve Bank of New Zealand cut policy rates by 25 basis points to 5.25 percent in August and by another 50 basis points to 4.75 percent in October. Officials have highlighted weakness in household spending in recent months, citing the effect of restrictive interest rates, falling net immigration, and a softening housing market.

The small fall in headline sales volumes in the three months to September reflects offsetting moves across major categories. Motor vehicles and electrical and electronic goods both recorded strong increases, with sales falling on the quarter for most other categories, including department stores, fuel, clothing, footwear and accessories, supermarkets and grocery stores and pharmaceutical and other store-based retailing. Sales also fell in values terms, down 0.7 percent on the quarter after a previous fall of 1.4 percent, with year-over-year growth in sale values weakening from a fall of 1.6 percent to a fall of 2.8 percent.

Households have been cutting back on retail spending so far this year in response to weakening household finances and forecasters see the pattern continuing into the third quarter. The consensus looks for retail trade to fall 0.5 percent in the third quarter from the second quarter after falling 1.2 percent in the second quarter from the prior quarter.

Retail trade data tracks changes in New Zealand retail sales. As consumption contributes heavily to New Zealand's GDP, a rising retail sales figure can be indicative of rising demand and subsequent inflation. While strong economic growth is typically good for the New Zealand economy, uncontrolled growth and rising inflation may lead to instability and corrective action from New Zealand's central bank. The release was recently changed from monthly to quarterly. The headline numbers are the percentage change in retail trade from the previous quarter and the percentage change in retail trade from the previous year.

Consumer spending accounts a large portion of the economy, so if you know how consumers are behaving, your will have a good indication as to where the economy is headed. Needless to say, that is a big advantage for investors. The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.