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Consumer confidence at 18-month low

Thursday 16th December 2010

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Consumer confidence is at its lowest level in 18 months, suggesting Christmas spending will be modest, a new survey shows.

The Westpac McDermott Miller consumer confidence index fell 5.8 points to 108.3 in the December quarter, its second consecutive decline. An index number above 100 indicates optimists outnumber pessimists.

Factors thought to possibly be contributing to the decline included the early onset of drought in Northland and Waikato, the slump in the housing market, the rise in GST, rising fuel prices, the hard reality of the Canterbury earthquake aftermath, and the Pike River Coal mine disaster.

Westpac senior economist Donna Purdue said consumer confidence had fallen to its lowest level in 18 months.

"Moreover, the fall in confidence is widespread, with every income group, both sexes and almost every region showing declines. That means consumer spending is likely to remain fairly modest over the Christmas period," Mrs Purdue said.

A net 36% of consumers expected to spend less on Christmas gifts than they did in 2009.

The median New Zealand consumer planned to spend $413 on Christmas gifts, down from $443 last year, while planned average spend was also down, from around $544 last year to $522.

The most influential factor in the decline in confidence was a fall in consumers' perceptions of their purchasing power, Mrs Purdue said.

Only a net 16.6% of respondents considered now to be a good time to buy a major household item, compared to 23.9% in the September quarter.

A net 9.3% were expecting bad economic times in the next 12 months, deteriorating from the 3% expecting bad times in September.

A net 22% said they were worse off financially than a year ago, up from a net 17% last quarter.

For the next year, a net 8.5% expect their own financial situation to improve, down from 12.8% in the September quarter and the lowest since March 2009.

"Consumers have clearly become more cautious over the past few months, and indeed over the past year, despite falling unemployment, lower income tax rates, strong commodity prices (particularly in the dairy sector), and lower fixed term interest rates," Mrs Purdue said.

"But even though these confidence figures suggest that consumers will remain cautious in the very near term, we continue to hold the view that consumer caution will not be sustained through 2011."



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