Consumer confidence rebounds on Govt tax reform

A high level of consumer confidence points to stronger spending in the months ahead. Photo Herald on Sunday

Consumer confidence rebounded in the June quarter, helped by tax changes unveiled in last month's budget.

The Westpac McDermott Miller Consumer Index rose 4.6 points to 119.3 points in the June quarter - the second highest reading on the index in more than three years.

An index number over 100 indicates there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists.

Westpac senior economist Donna Purdue said at least part of the improvement in confidence could be put down to proposed changes to tax.

Many households were expected to bring forward purchases of big ticket items in anticipation of the increase in GST on October 1, Purdue said.

"At face value, the high level of confidence points to stronger consumer spending in the period ahead, and importantly stronger spending than anticipated by the RBNZ in their June Monetary Policy Statement.

Auckland and, to a lesser extent, Wellington consumers led the upswing in confidence during the quarter.

The index for Auckland now stands at 126.8, up 7.3 points from March, while the Wellington index is 122.6, up four points.

The main boost in the index came from an increase in those consumers who think the present is a good time to buy major household items.

Confidence among consumers in Canterbury slipped 3.3 points to 114.6 points in June.

Purdue said consumer spending had been a notable weak spot in the economic recovery so far this year.

"However, with confidence at current levels, we expect that situation will prove temporary," she said.

A net 31 per cent of respondents said now was a good time to buy a major household item, up 10 points from the March quarter.

The results show consumers also became less despondent about their own personal financial situation during the quarter.

A net 14 per cent of respondents said they were worse off than a year ago, compared to a net 22 per cent last quarter.

"This is the less pessimism respondents have shown toward their current financial position in two-and-a-half years and, combined with consumers' continued optimism about their finances in the coming year, bodes well for stronger and more broad based spending ahead," Purdue said.

ASB economist Jane Turner said an improving labour market, increased job security and proposed tax changes were likely to be underpinning some of the increase in confidence.

"We are expecting a pick up in retail spending over quarter three ahead of the increase in GST. However, much of this increase is likely to be unwound in the subsequent quarter."

McDermott Miller Strategic Planning Consultancy managing director Richard Miller said given the GST link was a one-off effect, it would be unwise to interpret the current upturn in the consumer confidence index as a "harbinger of sustained recovery in retail spending".