Consumer Confidence - Q3 2000 Key Points

Data Flash (New Zealand)

* The WestpacTrust McDermott Miller index of consumer confidence fell to 98.1 in Q3, from 103.9 in Q2 and 123.0 in Q1. This is the lowest value recorded since Q3 1998. A reading less than 100 indicates that the number of pessimists exceeds the number of optimists.

* In contrast to Q2, confidence levels are greatest in the middle and upper socio-economic groups. This reflects the fact that many of the negative factors over the past quarter - such as higher interest rates, tobacco taxes and petrol prices - are likely to have impacted more significantly on lower socio-economic groups.

* A net 18% of respondents claim that their financial position has deteriorated over the past year, the most negative result recorded since 1993. However, a net 7% of respondents still expect to be better off financially a year from now, with better job prospects, salary or wage increases , and improved business profits providing cause for optimism.

* Negative sentiment about the near-term general outlook for the economy underpins household confidence, with a net 35% of respondents expecting bad economic times over the year ahead. In contrast, just six months ago, a net 28% of respondents had expected good economic times. Households cited poor economic policies as a key reason for pessimism. Opinion was divided over whether the weak exchange rate was good or bad for the economy. However, household optimism has improved slightly on a 5 year view - a net 27% expect good economic times over the next 5 years, up from a net 24% in Q2.

* A net 10% of respondents thought that it was a good time to buy a major household appliance, little changed from the historical low levels recorded in Q2. Interestingly, a 52% of respondents cited the prospect of rising prices as a good reason to buy now.

* Household expectations of inflation rose to 4.6% in Q3, from 4.3% in Q2 and 3.8% in Q1. Although household surveys tend to overstate the level of inflation, the direction of movement provides clear evidence that inflation pressures are mounting.

Commentary
* Today's outcome was in line with other measures of consumer confidence published in recent weeks. Retail sales have held up better than we had expected over recent months. Although in part this is probably due to strong net tourist flows, this survey supports the possibility that advance purchases of big ticket goods ahead of anticipated price rises may also have contributed to this strength. In any case, continued household pessimism is likely to dampen domestic demand over the period ahead, reinforcing our view that a near-term recovery in GDP growth hinges on a continuation of strong growth in the external sector of the economy.

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