Consumers grow more upbeat

Wednesday 16th June 2010

New Zealand consumers grew more upbeat in the second quarter, suggesting a weak spot in the economy is reviving, and indicated they see a net positive from tax reforms that cut personal tax while hiking GST.

The Westpac McDermott Miller Consumer Confidence Index rose to 119.3 in the three months ended June 30, from 114.7 three months earlier. That’s the second-highest reading in the past 3 ½ years and above the long-term average of 111.6.

The survey shows New Zealanders are becoming less miserable about their own financial position, with a net 14% claiming to be worse off than a year ago, down from a net 22% three months earlier. Since then, government figures have shown the jobless rate tumbled to 6% in the first quarter, from 7.1%, the biggest drop in 24 years, though retail spending has remained frail.

“Consumer spending has been a notable weak spot in the economic recovery so far this year,” said Donna Purdue, senior economist at Westpac Banking Corp.

“With confidence at current levels, we expect that situation will prove temporary.”

Reserve Bank Governor Alan Bollard noted sluggish household consumption when he raised the official cash rate a quarter point to 2.75% last week, the first hike in three years. He said more households were focused on reducing debt.

Consumers have been reluctant to get back into spending mode, with first-quarter retail sales up 0.2% from the three months through December, and Bollard said the recovery in household consumption was sluggish as people remained focused on paying down debt.

Consumers were most upbeat in metropolitan centres, where confidence rose 4.8 points to 124.7, outpacing a gain in rural areas of 3.4 points to 110.7.

Confidence in urban Auckland climbed 7.9 points to 128.3, ahead of Wellington’s 3 point gain to 124.2 and a 3.2 point decline in Christchurch to 113.8.

Signs of revival in consumer confidence may signal that New Zealanders will resume spending, after the recession spurred a trend toward paying down debt and curbing credit card excess. Today’s survey showed a net 31% of respondents deem it a good time to buy a major household item, up 10 points from the first quarter.

Purdue said the looming increase in GST, to 15% from 12.5%, on Oct. 1 is likely to be “a key factor” as households bring forward purchases to beat the tax hike.

The survey again polled consumers on their perceptions of the tax changes announced in last month’s Budget, which showed more see a positive benefit than a negative. Some 37% of those surveyed see a benefit from lower personal income tax rates, up from 33% in the first quarter, while those seeing a negative effect fell to 28% from 34%.

Those in the upper socio-economic group were the most upbeat, with 42% seeing a benefit, up from 33% three months earlier.

Generally, consumers are becoming more confident about the economy, with a net16% seeing good economic times in the next 12 months, up from a net 10% in the previous quarter. A net 48% expect better times over the next five years.

Businesswire.co.nz

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