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WestpacTrust Consumer Confidence - Q1 2001

Data Flash (New Zealand)
NZ: WestpacTrust Consumer Confidence - Q1 2001

Key Points

The WestpacTrust McDermott Miller index of consumer confidence rose to 121.6 in Q1 2001, from 113.8 in Q4 2000 and 98.1 in Q3 2000. This is the highest value recorded since Q1 2000. A reading greater than 100 indicates that the number of optimists exceeds the number of pessimists.

Perhaps of greatest significance, a net 22% of respondents now think it is a good time to buy a major household appliance, up from a net -4% in the previous survey. If this sentiment is sustained, past relationships suggests that an improvement in retail spending levels is in the offing. The likelihood of prices rises as a result of the weak NZD was cited by respondents as being one factor making now a good time to buy.

A net 4% of respondents expect to be better off financially in a year's time - the first positive reading since Q1 2000. Confidence levels are greatest in the middle and upper income groups and have shown a particularly marked improvement in the metropolitan centres.

Factors identified by respondents as underpinning increased confidence include better job prospects, higher wages, and greater profitability. The strong performance of the export sector is a key driver of consumer optimism.

Factors identified by respondents as undermining confidence include concerns about Government policy and rising cost pressures.

Household expectations of inflation fell to 4.2% in Q1 2000, from 4.4% in Q4 2000. However, household's expectations have tended to remain at around 4% over the past 10 years irrespective of actual inflation outcomes.

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Commentary

Today's very robust outcome is consistent with various other surveys of consumer confidence published in recent months. To date, retail sales have failed to reflect fully the rebound in confidence, but we expect the usual relationship to reestablish itself over coming months. Indeed, we believe that retail sales data for February will show reasonable strength after a disappointing January.

However, there is reason to be cautious beyond the immediate future. We would be surprised if both consumer and business confidence did not moderate slightly over coming months reflecting actual and expected impacts from weakness in many of New Zealand's export markets. Indeed, the anticipation of slightly less optimistic confidence levels going forward underpins our relatively modest view of the outlook for consumption. But more substantially, should export prospects weaken more significantly, a more pronounced deterioration in consumer sentiment could occur. This remains a risk to our central view of New Zealand's economic outlook.

Darren Gibbs, Senior Economist, New Zealand (64) 9 351 1376


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