Consumer confidence dips on SCF and quake

Photo / Hawkes Bay Today

Consumer confidence has taken a knock on news of South Canterbury Finance's demise and the Canterbury earthquake, unwinding the gains made during the previous quarter.

The latest Westpac McDermott Miller Consumer Confidence Index shows confidence fell 5.2 points to 111.4 during the third quarter, 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 fact that confidence had not fallen more implied a resilience among consumers, Westpac chief economist Brendon O'Donovan said.

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

There was little doubt the economic news since June had taken on a more negative tone, but given the backdrop it was surprising that confidence had not fallen more, O'Donovan said.

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 per cent of respondents anticipating a poor outlook over the next year, compared with the June quarter when 16 per cent of respondents expected the economy to improve.

Consumers were also more downbeat on their own financial circumstances, with 17 per cent saying they were worse off financially than a year ago, up from 14 per cent previously.

Still, Westpac noted that this is the second-least pessimistic result since Dececember 2007.

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

Perceptions on purchasing power were more subdued with 24 per cent saying now is a good time to purchase a major household item, down from 31 per cent in June.

Economists had been expecting some signs of a spending pick-up ahead of next month's increase in GST to 15 per cent from 12.5 per cent.

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

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," O'Donovan said.

"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.

- with BusinessDesk