KEY POINTS:
Consumer confidence has fallen, suggesting retailers will find the going increasingly hard as the year goes on.
But while the decline is a step in the right direction from the Reserve Bank's point of view, it may not be enough to avert another interest rate rise this year, says Westpac chief economist Brendan O'Donovan.
The Westpac McDermott Miller consumer confidence index fell to 111.4 from 117.7 in the March quarter.
Any level above 100 indicates more optimists than pessimists.
"The sharp fall suggests consumers are finally responding to the monetary medicine doled out by the Reserve Bank in recent months," O'Donovan said.
"It also suggests we can expect a sizeable pullback in consumer spending."
But some of the decline was a normal, "winter blues" effect. Seasonally adjusted, the decline was more modest, from 117.1 to 114.5.
And among the questions that feed into the index, views of the economy's prospects over the next two months recorded the sharpest fall.
It turned from a net 9.9 per cent optimistic three months ago to a net 9.1 per cent expecting bad times.
"At the time the survey was taken, interest rates were surging and the exchange rate was entering uncharted territory," O'Donovan said.
"Clearly this has been perceived as bad for the economy."
But consumers remain on balance optimistic about their own financial situations, although less so than in the March survey.
A net 11.9 per cent expect to be better off in a year, compared with a net 16.4 per cent three months ago.
And by a hefty margin they see it as a good time to buy a big-ticket item - a net 27.2 per cent had that view compared with 30.2 per cent in March.
O'Donovan said it was perplexing that the fall in consumer confidence was stronger in rural regions than in the main centres, in light of the large lift in dairy prices in recent months.
Despite the prospect of a significant boost to dairy farmers' incomes, the dairy-intensive regions of Waikato, Otago and Southland recorded some of the biggest declines in consumer sentiment.
