War feeds consumer gloom

By BRIAN FALLOW

Consumers are taking a gloomier view of the future, citing war in Iraq as the main reason.

The Westpac McDermott Miller consumer confidence index, released yesterday, recorded its steepest fall since sentiment fell into a crevasse in 2000, though optimists still outnumber pessimists.

The index reflects consumers' answers to five questions.

The one that recorded the sharpest fall asks whether they expect good or bad economic times in New Zealand over the next 12 months.

A net 6 per cent of respondents are now pessimistic about that, compared with a net 22 per cent optimistic in the December survey.

People's expectations about whether they will be better or worse off financially in 12 months have also deteriorated, but not to the same extent. A net 13 per cent expect to be better off, down from a net 22 per cent three months ago.

And there are more respondents who feel worse off financially compared with a year ago than there are respondents who feel better off.

Though confidence is weakest in rural areas, which face falling incomes, the big cities are not immune. Auckland recorded the second-steepest decline.

"The economy went great guns in 2002 but now appears to be running out of steam," said Westpac treasury economist Nick Tuffley.

"Consumer confidence is at its lowest level since September 2000.

"The weaker export sector and adverse international events are weighing heavy," he said.

But confidence was still positive overall and consumer spending was still growing this year, Tuffley said.

The Westpac survey follows the weekend's One News/Colmar Brunton survey which recorded an even steeper fall in confidence.

A net 18 per cent of respondents expected the economy to be worse in a year, whereas last month a net 4 per cent expected an improvement.

Deutsche Bank chief economist Ulf Schoefisch said that although that had clearly been influenced by the Iraq war, confidence as measured by the Colmar Brunton survey had been slipping for the past six months.

He points to two other recent indicators that domestic demand is slowing - something the Reserve Bank needs to see before it will feel comfortable about cutting interest rates.

Retail sales are losing momentum. Excluding car yards and service stations, which are sources of volatility in the data, retail sales in January were up only 0.2 per cent on December, seasonally adjusted.

Major retailers like Pacific Retail Group have been reporting more difficult trading conditions.

February looked a weak month too, Schoefisch said. Credit card billings rose only 0.2 per cent, and car registrations fell, after rises of 3 per cent in January and December.

Meanwhile, the housing market seems to be coming off the boil.

Turnover fell 2 per cent last month, seasonally adjusted, Schoefisch said, driven mainly by the Auckland market which fell 10 per cent.

While net inflow of immigrants remained strong, that should be seen as something that would prevent an even sharper slowing of domestic demand, he said, rather than something that would maintain demand growth at uncomfortable levels.