Consumer confidence fall points to slowdown

By BRIAN FALLOW economics editor

Consumer confidence has softened and people are feeling worse about the future than the present, which in the past has heralded a slowdown in economic growth.

The Westpac McDermott Miller consumer confidence index fell to 121.7 from 124 per cent three months ago. Any number above 100 indicates more optimists than pessimists.

But Westpac chief economist Brendan O'Donovan said consumers' level of optimism about their current financial state was higher than their optimism about the future.

"In the past this has presaged an economic slowdown. This matches our own view of the economy. We believe growth will slow to around 2 per cent in 2005."

The index reflects responses the survey's 1582 respondents gave to these questions: whether they are better or worse off than a year ago, whether they expect to be better or worse off in a year's time, whether it is a good or bad time to buy a major appliance, and whether they expect good or bad economic times over the next year and the next five years.

The biggest change from three months ago relates to the question about buying a major appliance. A net 39 per cent still regard it as a good time to buy, but that is down from a net 49 per cent in March. Westpac attributes this to the falling dollar, which makes imported goods more expensive, and rising interest rates.

Despite a small drop in confidence, Auckland is the most confident region. Confidence is higher in the three main centres.

Confidence is highest among the young - 18 to 29-year-olds, though that age group suffered the steepest fall from March. The 50-plus group, on the other hand, is more positive than three months ago.

Westpac attributes the difference to the fact that recently the Reserve Bank has twice raised interest rates, which is good news for savers.

Overall, the survey suggested economic growth and retail sales should remain strong for a while, but that the peak in both had come and gone, O'Donovan said.