Relief is key to consumer rebound

Photo / Dough Sherring

Consumer confidence has rebounded, though it is seen as relief at disaster averted and not a sense that happy days are here again.

The June Westpac McDermott Miller consumer confidence index rose to 106 from 96 in March.

Any level above 100 indicates more optimists than pessimists. It is now at its highest level since December 2007 and not far off its long-run average of 111.

"It seems consumers are responding not so much to what has happened but to what hasn't happened," Westpac economist Donna Purdue said.

"Back in March the fear factor around the economic outlook was huge. Globally growth appeared to be in free-fall and no one knew at what point the slump would stop," she said.

"Domestically, business confidence was crumbling, house prices were falling, widespread job losses seemed inevitable and access to credit was tight."

But since then the weight of evidence suggested the worst of the global downturn had passed, Purdue said. The global economy was still in recession but the fear of something much worse, like the Great Depression of the 1930s, had diminished.

Plenty of things could have driven confidence lower: fuel prices rising, tax cuts cancelled, Fonterra's payout forecast slashed, unemployment rising and swine flu.

But on the other hand: "The housing market is showing clear signs of a pick-up, with sales up a whopping 53 per cent since the trough in activity in late 2008 and house prices have probably risen in recent months," she said.

"Mortgage interest rates on average are still expected to deliver around $3 billion in additional stimulus by the end of the year as people roll off higher fixed rates, while the tax cuts introduced on April 1 deliver around $1 billion in extra income."

Among the survey's component questions the biggest improvement was in respondents' views of the economic outlook over the next 12 months. A net 28 per cent still expect bad times but that is up from a net 57 per cent in March and a net 52 per cent last June, when overall confidence was at its nadir.

But there was only a marginal improvement in responses to the question about whether respondents were better or worse off financially than a year ago.

A net 26 per cent said they were worse off, not as bad as a year ago but still very weak by historical standards.

A net 16 per cent of respondents said now was a good time to buy a major household item, up six points from March and 26 from June last year.

When asked what they would do with a $10,000 cash windfall, 54.3 per cent said they would pay off debt or save it, down from 58.3 per cent in March.

While that highlighted that an element of caution still existed among consumers, Westpac's Purdue said, current levels of confidence were consistent with a mild increase in consumer spending in the June quarter following the slump in the March quarter - when retail sales fell 2.9 per cent in real terms.

The lift in confidence was spread across all regions except Waikato.

The biggest improvements were in the main centres, among men, those in their 20s and those in the highest income bracket.

CONFIDENCE UP

* The McDermott Miller consumer confidence index rose to 106 in June from 96 in March.

* A net 28 per cent of respondents still expect bad times but that is an improvement from a net 57 per cent in March.

* A net 26 per cent said they were worse off than a year ago, an improvement from 28 per cent in March and 41 per cent a year ago.

* A net 54.3 per cent would use a $10,000 cash windfall to pay off debt or save it, down from 58.3 per cent in March.