KEY POINTS:
Consumer confidence has improved despite a faltering housing market, finance company collapses and rising food and petrol prices.
The Westpac McDermott Miller index rose to 113.5 from 111.4 in the June quarter; any number over 100 indicates more optimists than pessimists. The largest increases were in the provinces, especially those with substantial dairying industries such as Southland, Otago and Waikato.
What was more surprising was the lift in confidence in Auckland, said Westpac economist Donna Purdue. "With the housing market slowing, and quite quickly, you would have expected less optimism, not more. If it is like previous housing corrections it will be a good few years before we get back to double-digit house price growth again."
The latest survey shows a divergence between optimism about the economy's prospects in the medium term and current pressure on householders. A net 34 per cent of respondents expect good economic times over the next five years, up from a net 23 per cent three months ago. It is the most confident they have been about the medium-term outlook since 2001.
Westpac puts this down to the dairy boom, the buoyant labour market and the prospect of tax cuts. However, on balance people are negative (by a net 3 per cent) about the economic outlook over the coming year, less than in the June survey (a net 9 per cent).
"Higher interest rates, the softer housing market and higher food and energy prices are likely to be the key influencing factors."
Only a net 1 per cent of respondents said they were better off financially than they were a year ago (4 per cent in June) and a net 21 per cent regard it as a good time to buy a major household item, down from a net 27 per cent three months ago.
This suggested there might be less comfort for retailers in the survey than the headline rise in confidence suggested, said Donna Purdu.
But more consumers expect to be better off in a year's time (a net 15 per cent) than did in June (12 per cent), reflecting the tight labour market.
The Reserve Bank would take little comfort from the survey's results, she said. It revised up its expectations of consumption growth for the current year on the basis that higher dairy incomes would more than offset the impact of stalling housing prices and a higher average mortgage rate.
"In this respect the lift in confidence will only have reinforced their view. Nevertheless, with inflation forecast to be near the top of the target band [3 per cent] over the next few years, they will remain wary of any sign that the pace of consumer spending may be about to step up."
