Consumer Sentiment Bounces Back In December

WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia 18 December 2000

CONSUMER SENTIMENT BOUNCES BACK IN DECEMBER

Surveyed consumer sentiment bounced back into positive territory in the December quarter, according to the latest WestpacTrust McDermott Miller Consumer Confidence Index.

The index rose from 98.1 in the September quarter to 113.8 in December, its highest level since March 2000. An index number over 100 indicates that there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists.

“The rise in consumer and economic confidence reflects the improved conditions over the second-half of 2000,” said WestpacTrust Chief Economist Adrian Orr.

“Economic growth has picked up over recent months, having been stagnant over the first half of 2000. It appears that the low New Zealand dollar has kicked the economy along, with export revenues now filtering into domestic spending,” Mr Orr said.

“Consumer confidence is up in all regions, although it is the metropolitan regions that have led the resurgence, having languished behind the rural-recovery throughout the year. The two-speed economy is merging into one as export revenues are increasingly being circulated domestically. Auckland is now the second most confident region in the country at 119 on the index, having trailed in the confidence stakes for several quarters.”

Mr Orr said that behind the renewed consumer confidence are expectations that the New Zealand economy will perform better over the next 12 months. A net 20% of respondents expect good economic times next year, which is a sharp turnaround from the net 40% who expected a deterioration as recently as the September survey. A net 20% of respondents also expect to be financially better off in the year ahead.

“Since June, job growth has improved, unemployment has fallen to a 12 year low and the export sector has performed strongly as world growth and commodity prices held up. WestpacTrust expects a solid 3% growth for the economy over the year ahead as domestic spending increasingly offsets a slower outlook for exports,” he said.

Mr Orr warned that the international economy has reached a critical juncture.

“The United States economy is slowing and consumer confidence has also taken a significant dip in Australia. The Reserve Bank of New Zealand will increasingly find itself balanced between rising domestic spending and a weaker world outlook. We suggest they can afford to wait until at least March before deciding whether to act on their threat of raising interest rates,” he said.

Richard Miller, Managing Director of strategic planning consultancy McDermott Miller Limited, said: “Consumer confidence has bounced back with all consumer groups and regions once again strongly optimistic.

“Consumer sentiment has been volatile all year,” he said. “Last December the WestpacTrust-McDermott Miller Consumer Confidence Index for New Zealand was 120.6, by March it had risen to 123 and in the following quarters slid down to 103.9 in June and 98.1 in September. 2 of 11

“The volatility in consumer sentiment has reflected the public debate about the strengths and prospects of the New Zealand economy. The emergent consensus on an export-led economic recovery appears to have been accepted by consumers, with the December index showing the largest ever quarterly jump in confidence about New Zealand’s economic growth prospects over the coming year,” Mr Miller said.

“The principle reasons given by respondents for regaining their confidence in the economy are better export prospects and the expectation of a strengthening New Zealand dollar. They realise the former will generate employment and income growth while the later will curb price increases for petrol and other imports which erode their spending power.

“While all regions are once again optimistic, most North Island regions, with the notable exception of populous Auckland, are less optimistic than regions in the South Island. South Island consumers seem to have experienced earlier the trickle down effect of resurgent exports. Aucklanders, on the other hand, are relatively more confident than other regions that they will inevitably receive salary and wage increases as the economy picks up.

“Although consumer confidence in the economy appears to be restored there is less certainty whether now is a good time to spend on major household items. Women consumers particularly look to be nervous about a premature shopping spree and retailers may find that the Christmas rush is subdued as far as the big ticket items go,” said Richard Miller.

“The March 2001 consumer confidence survey and index will be critical to determine whether consumer sentiment has stabilised at an optimistic level or remains volatile.” Mr Miller continued: “If the export-led recovery translates quickly into increased household income and employment we can expect sustained consumer optimism and the beginnings of a consumer spending-led domestic recovery.”

ENDS

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