Consumers climbing out of the gloom

Pessimists outnumber optimists in the latest Westpac McDermott Miller
survey of consumer confidence, but sentiment remains well above the
crevasse it fell into briefly in the middle of last year.

The quarterly survey's index fell to 96 from 101 in December. Any level below 100 indicates more pessimists than optimists. But it plunged to 82 in June last year, a level not seen since the early 1990s.

"Confidence has remained remarkably resilient given the sheer volume of negative news consumers have been bombarded with in recent months," said Westpac economist Donna Purdue.

Even if local news had been less sensational than that from overseas, it was still disturbing.

"That raises the question as to whether New Zealand consumers are staunch or whether they are simply in denial," she said.

Nonetheless the level of confidence pointed to weak consumer spending over the next few months at least.

The index reflects consumers' answers to five questions about their personal situation and the economy in general.

The one which stands out as unusually cheerful is the net 50 per cent who expect good rather than bad times in the economy five years from now. The response looked a bit fragile, Purdue said, when the long-run average response to that question is a net 30 per cent positive.

By contrast a net 57 per cent expect things to get worse over the next 12 months, the lowest level since June 1998. The steep but short-lived plunge in confidence in the middle of last year reflected the squeeze on consumers from high petrol prices and high mortgage interest rates.

Since then international oil prices have tumbled, there have been income tax cuts in October and more are due next week, and the Reserve Bank has slashed the official cash rate.

The cashflow benefit of lower mortgage rates alone would eventually reach $4 billion a year, Westpac calculates.

In addition New Zealanders' relatively low holdings of financial assets, especially shares, have reduced the impact of tens of trillions of dollars being wiped off the value of global sharemarkets.

That may account for the fact that consumer confidence is higher here than in Australia, where the comparable figure is 86.

In the United States it is a deeply depressed 57.

When asked what they would do with a $10,000 cash windfall, 58 per cent said they would pay off debt or save it.