Consumer confidence hits five and a half year low

By NZPA

Wednesday 29th March 2006

Consumer confidence dipped to a five and a half year low in the March quarter, according to the latest Westpac McDermott Miller Consumer Confidence Index.

The index dropped to 109.3 in March, from 110.1 in December.

A figure over 100 indicates there are more optimists than pessimists.

Westpac chief economist Brendan O'Donovan said while the fall in the headline number seemed low, the underlying tone of confidence was much weaker than the December quarter.

O'Donovan said consumers were becoming more circumspect as the housing market goes sideways and employment growth slowed.

"The slowdown that the RBNZ (Reserve Bank of New Zealand) wanted is now here, and in spade," O'Donovan said.

A raft of gloomy economic data has come out since the December quarter, including the $13.7 billion current account deficit for 2005 - which equated to 8.9% of Gross Domestic Product (GDP), the worst ratio since 1986. Fourth quarter GDP was also worse than expected, with the economy going into reverse rather than expanding slightly as expected.

The New Zealand dollar has slumped to below US61c, with expectations of further weakness.

Only a net 2% of respondents to the survey said they felt financially better off than a year ago, compared to 11.7% in December.

But 13.6% of respondents expected to be better off in a year's time, compared with 11.2% in December.

A net 19.7% of respondents thought the economy would worsen over the next 12 months - the most pessimistic reading since September 2000.

Only 22.2% thought the economy would pick up over the next five years.

More respondents thought now was a good time to buy a major household item - 28.2%, up from a five year low of 17.7% in December.

McDermott Miller managing director of strategic planning, Richard Miller, said over the longer term it seemed consumer confidence and spending would fall as the kiwi dollar fell and the cost of imported retail goods rose.

"Consumers have become used to prices of imported goods going down and are likely to keep their credit cards in their wallets when the opposite happens, hoping that price increases will be only temporary."

On the positive side, further weakness in the New Zealand dollar will help boost incomes for people working in export-related fields.

Confidence was down in most regions, with both metropolitan and secondary centre consumers less optimistic than they were in the December quarter, with the metropolitan sub-index down 1.6 points and the secondary centre sub-index down 0.9 points.

Rural consumers - who are more likely to see higher export related incomes as the kiwi dollar falls - were more upbeat. The rural sub-index rose to 105 points, from 103.7.

Northland respondents were also positive, with their confidence levels rising to 114.8 from 103.6, possibly reflecting expectations of higher income from tourism and the primary sector from the softer dollar.

Confidence in Nelson-Marlborough/West Coast was also on the up, hitting 107 points, from 99.4, while in Otago it rose to 115.2 from 106.6. Auckland edged up to 110.8, from 110.6.

On the downside, Waikato fell to 106.9 from 107.2; Bay of Plenty fell to 104.8 from 114.1; Gisborne/Hawke's Bay fell to 101.9 from 104.7; Wellington slipped to 115.8 from 117.2; Canterbury fell to 108.5 from 113.2; Southland fell to 93.6 from 99.2 and Taranaki/Manawatu-Wanganui fell to 106.2 from 110.4.

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