Consumer Confidence Surges In December

WestpacTrust
Media Release

WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia

Embargoed Until 1.00am Friday 7 January 2000

CONSUMER CONFIDENCE SURGES IN DECEMBER

Consumer confidence surged higher over the December quarter according to the latest WestpacTrust McDermott Miller Survey of Consumer Confidence. The consumer confidence index reached 120.6 in December, a rise of 6.0 index points (5.2%) on the 114.6 recorded in the September quarter. This is the highest level in the consumer confidence index since the December quarter of 1996.

A result over 100 indicates more optimists than pessimists while a reading under 100 indicates more pessimists than optimists.

“A strong rise in consumer confidence over the December quarter is further evidence that the New Zealand economy is firmly in growth mode and bodes well for increasing robustness to the economic expansion over 2000,” said WestpacTrust Chief Economist Bevan Graham. “This sharp increase in the index over the quarter was driven by improved positive expectations about the short term outlook for the New Zealand economy.”

“Following the recession induced pessimism of 1998, consumers spent nine months sitting on the fence waiting for confirmation that the economy was on the mend post drought and Asian financial crisis. That indifference was justified following the June quarter GDP contraction, which threw the recovery into doubt. Since then economic news has pointed to a strong bounce-back and confirmation that the New Zealand economy is on a strong growth trajectory,” Mr Graham said.

In December a net 24.3% of respondents expected good economic times in the next twelve months. This is up from a net 1.3% expecting bad economic times in the next twelve months in September, and a 180 degree turnaround from the net 23.1% expecting bad times in December 1998.

“This survey comes hot on the heels of the November 27 general election,” Mr Graham said. “The change in government appears to have had a positive impact in at least two demographics – those aged over 50 and those in the socio-economic category “not working”.
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However, opinion over the likely impact on the economy of the change in government appears divided. Of those expecting good economic times over the next 12 months, 25% attributed this to the change in government. On the other hand, of those expecting bad economic times over the next 12 months, the change in government was the reason given by 27% of respondents.

“Also of note was the net positive number of respondents who felt they were now better off than they were a year ago. This is only the sixth positive response to this question in the history of the survey.

“While still strongly positive, the response to whether people expect to be better off in a year’s time fell slightly. Of those who expect to be worse off in 12 months, 33% attributed this to tax increases.

“The only question to post a significant decline this quarter was whether consumers believed this to be a good or bad time to buy a major household appliance. This question normally declines in the December quarter as consumers become pre-occupied with Christmas,” Mr Graham said.

“The December quarter result also confirms that the recovery is becoming broader based, in that the most significant rise in confidence came from rural and secondary centres. Confidence in rural centres rose 10.8 index points over the quarter, secondary centres 8.8 points and metropolitan centres only 0.5 points.

“It has long been our assertion that as export fortunes improved, rural and secondary centre confidence would rise, while the better-economic-prospects induced rise in interest rates would stabilise confidence in the more interest rate sensitive metropolitan centres. The upshot is that while the recovery is becoming broader based on a sectoral basis, it is also becoming broader based regionally,” Mr Graham said.

“This latest result bodes well for those sectors of the economy where consumer confidence is a necessary ingredient to growth – namely retail sales and residential property. Indeed anecdotal evidence suggests a strong Christmas retailing period.
“This result, combined with the stronger than expected third quarter GDP out-turn has caused us to revise up our expectations for GDP growth in the year to March 2001 to 4% from 3.7% previously. The negative corollary to this, however, is that it reinforces our expectations of tighter monetary policy, with interest rates expected to rise over the next 18 months,” Mr Graham concluded.
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“Consumer confidence in New Zealand rose strongly in the December quarter,” said Richard Miller, Managing Director of strategic management consultancy McDermott Miller Limited. “The WestpacTrust – McDermott Miller Consumer Confidence Index now stands at 120.6 points, a rise of 6 points from its September level.

“This is the first time in almost three years that all socio-economic and regional categories of consumers are strongly optimistic. The groups of consumers who have been persistently pessimistic (the 50+ age group, the unemployed and lower income groups) are now almost as optimistic as the younger and high income consumers. There has been a particularly strong lift in confidence in the rural areas (up 10.8 points to 115.8) and secondary centres (up 8.8 points to 120.0). Consumer optimism in the populous metropolitan regions is stable (shifting only 0.5 points to 123.2).

“Consumer optimism in New Zealand is reflected by the consumer optimism of two of its major trading partners, United States and Australia,” said Mr Miller. “The United States Consumer Confidence Index, prepared by the Conference Board research group, rose to 141.4 in December, reaching its highest point in 31 years. The Australian Index of Consumer Sentiment, prepared by Westpac – Melbourne Institute, was about the same as New Zealand in the September quarter at around 114 points. Although it fell to 107.8 in the December quarter, it is still a relatively optimistic level in terms of the long-term trend in Australian consumer confidence.

“The WestpacTrust – McDermott Miller Consumer Confidence Survey indicates that several factors have contributed to the sharp rise in New Zealand consumer confidence,” Mr Miller said. “Foremost, is the widespread expectation that New Zealand will experience good economic times over the next 12 months and, for some socio-economic groups who have missed out recently, the accompanying expectation that they will be better off financially over the same period. This reflects the widely publicised official announcements of economic recovery and forecasts by economists that national economic growth will continue and possibly accelerate over the medium term.

“Consumers in the rural areas and secondary centres have also noted the broadening base of the economic recovery. Improved international trading conditions and the prospect of rising export sales and rural incomes have given consumers in these areas cause for optimism.
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“Consumer and business spending also has been buoyant over the December quarter with retailers indicating higher Christmas sales than last year. Spending, no doubt, has also been stimulated by preparations for millennium celebrations,” Mr Miller said.

“The change in government which preceded the Consumer Confidence Survey also had a positive impact upon the sentiment of some groups of consumers. The unemployed, lower income groups and consumers in the 50+ age group all point to new economic policies and more government spending by the new government as reasons for believing the economy and their households will be better off in the year ahead.

“This is offset to a degree by higher income consumers, particularly in the metropolitan centres, expecting to be worse off financially over the year ahead through increased taxation. By and large, however, consumers seem to expect the new government to adopt a “steady as you go” approach to economic management and believe the national economy and their own regional economies are strong enough to sustain income levels over the year ahead.

“In most regions the consumer optimism is likely to remain high over the first quarter of 2000 and buoyant retail spending can be expected,” said Mr Miller. “Over the longer term, household debt, possible interest rises and tax increases could subdue both consumer confidence and spending and, consequently, restrain domestic led economic growth. Continued expansion of exports and planned government spending to spread the benefits of economic growth will help sustain the new found optimism amongst the rural and lower income consumers. Provided consumer confidence in the metropolitan centres does not falter in the meantime, consumer confidence in New Zealand should remain positive over the year 2000.”

ENDS

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