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Consumer Confidence Eases In The June Quarter

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


Consumer confidence eased back from its recent high during the June 2001 quarter, falling from 121.6 in March to 117.0 in June, according to the WestpacTrust McDermott Miller Consumer Confidence Index. An index number over 100 indicates that there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists.

“Despite the small drop in confidence this quarter, the positive level remains consistent with modest consumer spending and GDP growth in the year ahead,” said WestpacTrust Chief Economist Adrian Orr.

“Consumer confidence has held up well in the face of global economic uncertainty. Moreover, this confidence is increasingly being translated into spending, with the domestic economy on the way to picking up the slack from weaker export growth,” said Mr Orr.

The only region to report a rise in confidence in the quarter was the Nelson/Marlborough/West Coast, most likely reflecting the end of the drought in that region. Encouragingly, however, confidence in the Auckland region has held up well and is now the third most confident region in the country.

The rural areas are the least optimistic this quarter, particularly the Bay of Plenty, Taranaki and Manawatu. However, buoyant confidence in Otago and Southland continues, as these areas benefit from strong growth in farm incomes.

Four of the five component questions of the consumer survey eased this quarter, although optimists continue to outweigh the pessimists on all counts. In terms of the economic outlook, only a net 15% of respondents now expect good economic times over the year ahead, compared to 26% in March.

“Consumers appear aware of the deterioration in the global economy and the implications for New Zealand, with fewer expecting better export prospects over the year ahead,” said Mr Orr.

“Most survey respondents remain optimistic about their own financial situation, albeit less so than last quarter. Better job prospects, higher wages, and greater profitability remain the key influences on optimism.”

The good news for retailers is that consumers continue to perceive now as a good time to buy major household items. Of the five key questions in the survey, this was the only one to report a rise in optimism in the quarter.

“Improved domestic spending is widely anticipated for this year. But, in an environment of slowing export growth, unsettled business confidence, and debt-constrained households, the economy seems in little danger of overheating and generating inflationary pressures. Moreover, the risk remains that the global slowdown will persist, eventually wearing down commodity prices and demand for New Zealand products and services. The balance of risks still suggests that a further interest rate cut from the Reserve Bank is sensible,” said Mr Orr.

“Consumer sentiment has been volatile over the June year,” stated Richard Miller, Managing Director of McDermott Miller Limited. “It was at a pessimistic low in September 2000, achieved an optimistic high of over 122 in March this year and has dropped again this quarter to 117.

“Uncertainty about the performance of New Zealand’s economy seems to underlie this volatility,” observed Mr Miller. “Over the last year a significant and growing number of consumers have been gloomy about the short-term outlook for the economy and a large and growing number have expressed uncertainty about its prospects over the next five years.

“On the positive side, many consumers seem to have insulated themselves from the financial effects of the downturn. Half of all consumers expect to be as well off financially this time next year as they are now. This expectation seems to underlie the strong feeling amongst consumers that now is the time to shop for big ticket items,” he said. “Stable income, lower interest rates, rising import prices, winter sales and strong retail competition point to rising consumer spending over the coming months.

“Predictably, farmers are the most optimistic group of consumers in the country. They stand at 132 on the Consumer Confidence Index. Some 60% feel they are better off than this time last year, 86% expect to be at least as well or better off in a year’s time and over 50% believe there will be good economic times in the year ahead. Unsurprisingly, the farmers strongly believe now is a good time to buy major household items. But, unlike other consumers, the main reason given for the farmers’ shopping impulse is ‘I have money to spend’.

“The June Consumer Confidence Survey took place shortly after the Government budget was released,” noted Mr Miller. “The budget appears to have had little positive impact on consumer sentiment and may even have increased consumer uncertainty. The most frequently stated reason given by consumers for their pessimism about the economy is ‘wrong government policies’.

“It is interesting to contrast consumer sentiment on both sides of the Tasman. In New Zealand, consumer confidence and spending has fluctuated over the June year ending in a downturn as New Zealand’s currency has fallen and its domestic economy has failed to recover. Australian consumer confidence, on the other hand, started at a lower level of optimism (100 in June 2000) but experienced its strongest quarterly lift this June (up 17 from 89 points to 106 on the CCI). This coincided with an expansionary budget and a string of positive economic indicators (including robust GDP growth, increased retail spending, an improving housing sector and the likelihood of lower unemployment). Recognition that the economic fundamentals are strong is restoring Australian consumer confidence and points to a domestic led recovery across the Tasman,” concluded Mr Miller.


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