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Consumer confidence on shakey ground

Friday 17th September 2010

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New Zealand consumer confidence declined in the third quarter, in the face of South Canterbury Finance's failure and the South Island's earthquake, according to the Westpac McDermott Miller Consumer Confidence poll.

The measure fell 5.2 points to 111.4, unwinding gains seen in the June quarter and bringing confidence back to levels last seen at the beginning of the year. An index number over 100 indicates there are more optimists than pessimists, while a number under 100 indicates the reverse.

"The collapse of South Canterbury Finance and the 7.1 magnitude earthquake in the Canterbury region on Sept. 4 had the potential to weigh heavily on confidence this quarter," said Brendan O'Donovan, chief economist at Westpac.

"The fact that confidence has not fallen by more implies a resilience amongst consumers that we had not anticipated."

Responses in four of the five component questions showed a decline in the latest quarter. Perceptions on the short-term economic outlook fell the most, with 3% of respondents anticipating a poor outlook over the next year, compared with the June quarter when 16% of respondents expected the economy to improve.

Consumers were also more downbeat on their own financial circumstances, with 17% saying they were worse off financially than a year ago, up from 14% previously. Still, Westpac noted that this is the second-least pessimistic result since December 2007.

In terms of the coming year, consumers remained optimistic, but less so than in the June quarter, with 13% expecting their financial situation to improve, down from 16%.

Perceptions on purchasing power were more subdued with 24% saying now is a good time to purchase a major household item, down from 31% in June. Economists had been expecting some signs of a spending pick-up ahead of next month's increase in GST to 15% from 12.5%.

Consumers were however more positive on the long-term outlook, with 55% expecting an improvement in the economy in the next five years, up from 48% in the June quarter.

While confidence had fallen, Westpac noted that the current levels of remain above the long run average, and are broadly consistent with annual average growth in real consumer spending of around 3%.

That contrasts with the Reserve Bank's muted growth outlook for the New Zealand economy, according to the statement.

"At present, the ability to spend is being hampered by weak income growth," said O'Donovan.

"However, once that situation improves, as we and the Reserve Bank expect it will, it is hard to believe consumers will not act."

By region confidence dropped almost across the board, with sharp declines in the Bay of Plenty and Auckland. Confidence in the Gisborne-Hawke's Bay and Canterbury regions increased

The survey noted that the Canterbury earthquake occurred at the start of our survey period, which raised the prospect of a bias amongst respondents in the region, as only those with access to telephones were interviewed.

Businesswire.co.nz



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