NZ consumers spend and hope, businesses worry

By NZPA

Tuesday 24th September 2002

New Zealand consumers are more optimistic than those who are in the business of making money, according to the latest economic barometer.

Consumer confidence remained at a high level in the September quarter, with optimists outweighing pessimists according to the WestpacTrust McDermott Miller Consumer Confidence Index released today.

Confidence eased only slightly to 119.6 in the three months to September from 121.0 in the June quarter. An index number over 100 indicated optimists outnumbered pessimists.

"The continued high level of consumer confidence is in sharp contrast to the slump seen in business confidence in recent months," WestpacTrust chief economist Adrian Orr said.

Last month's National Bank Business Outlook showed the fifth consecutive drop in business confidence, with a net 31 percent of respondents expecting economic conditions to deteriorate in the coming year.

"While businesses are faced with reasonable uncertainty, consumers continue to have good cash-flows and are bolstered by rising wealth," Mr Orr said.

"Employment and wage growth is continuing, and household wealth is rising on the back of house prices. All of these factors suggest that there is momentum left in domestic spending until at least early next year."

That was backed up by Statistics New Zealand's July retail sales figures earlier this month, which showed annual sales growth of 8.7 percent, although on a monthly basis sales rose just 0.5 percent.

Despite a decline in the rural sector, which underpinned a booming economy last year, consumers were positive about their current and financial position, although slightly less so than in the June quarter.

The number of respondents who considered now was a good time to buy a large household item rose 1.5 percent for the quarter and by 4.3 percent for the year.

However, the outlook was not so rosy longer term, with more consumers -- a net 6.5 percent of respondents -- expecting the economy to lose some steam in the next 12 months when compared with June.

Overall, consumers remained optimistic about New Zealand's short-term economic prospects, and views on the longer-term economic outlook were still very positive.

Continuing a trend started in June, confidence fell in secondary and rural centres for the quarter, with sharp falls in Northland (8.5 percent), Canterbury (7.9 percent), and Southland (4.4 percent).

Mr Orr said the impact of lower commodity prices and the delayed global recovery appeared to be eroding farmers' spirits.

Nevertheless, all regions remained in positive consumer confidence territory.

Confidence was up in the Auckland region (2.5 percent), which continued to be bolstered by job growth and rising house prices, with migration and the America's Cup also possibly playing part.

Auckland, Bay of Plenty (0.4 percent) and Taranaki/Manawatu (0.5 percent) were the only regions to record a rise in confidence for the quarter.

"Auckland was always picked as a hopeful late runner and this has proved the case, with it now in the lead by a length in the optimism stakes," Mr Orr said.

"The recent surge up the field is encouraging for the economy as a whole, given the size and importance of Auckland's economy and the current slump in international economic growth.

"But, despite the high level of consumer confidence, there are clear signs that this business cycle upswing is past its best-by date. Retail sales growth looks to have peaked, house sales are off their April highs and the slump in business confidence suggests that business investment growth will be weak over the coming year.

"So long as we are willing and able to shop, domestic spending should maintain enough momentum to continue to propel the New Zealand economy forward until early 2003, when hopefully the global economy will have more oomph.

"And, with the new more lenient approach to monetary policy, interest rates are likely to remain on hold until March 2003," Mr Orr said.

Retailers were unlikely to see a sales boom in the short term because of the fall of confidence in the upper socio-economic group, to 44 percent from 50 percent in the June quarter, McDermott Miller managing director Richard Miller said.

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