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Consumer Optimism Shows Modest Rise

WestpacTrust
Friday October 8

Consumer Optimism Shows Modest Rise


Consumer confidence posted a small rise in the September quarter, according to the WestpacTrust McDermott Miller Survey of Consumer Confidence.

The index increased 0.9 points to 114.6, a rise of 0.8% from June, when the index stood at 113.7. In spite of higher confidence in the September quarter, the index remains below the short-term peak of 116.3, attained in the March quarter of this year.

An index number over 100 indicates that there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists.

“Higher consumer confidence in the September quarter is a welcome signal that the economy’s brief flirtation with negative growth in the second quarter of 1999 is over”, said WestpacTrust Chief Economist Bevan Graham.

“The economy posted a drought induced contraction of 0.3% in the June quarter, although September consumer confidence and partial indicators for the September quarter are suggestive of a return to positive growth in the period”.

“In particular, retail sales for the July and August months have been strong and point to a significant contribution to growth by the retail sector in the September quarter”, Bevan Graham said.

“Consumer confidence is a key influence on retail spending and private residential investment, two sectors that are considered to be highly sensitive to interest rates. It would appear that higher fixed term mortgage rates in the September quarter failed to dent householder enthusiasm given that a net 29.6 per cent of respondents felt that it was still a good time to purchase a major household appliance”.

“The main driver of higher consumer confidence in the September quarter was an improved outlook by households regarding their own financial situation in a year’s time, with a net 20.4 per cent feeling positive. The key reason for optimism was anticipation of a wage or salary rise, or an improvement in business profits for self-employed householders”, Bevan Graham said.

“However, householders were less optimistic about the economy’s prospects over the coming twelve months, with a net 3.5% holding a negative view. The survey showed that most householders felt that the positive spin-offs from the America’s Cup and the Millennium would not offset underlying uncertainty about the future direction of economic growth. Until that uncertainty is resolved, consumer confidence will fail to fire”, Bevan Graham said.

“On a regional basis, metropolitan centres are enjoying higher levels of confidence than secondary and rural areas. This reflects the lingering impact of two years of drought and continued softness in commodity prices”.

“In general, consumer confidence remains well below the apex of the last business cycle, when confidence was consistently above 120 on the index. Consumer confidence index numbers over 1999 to date are therefore suggestive of a sustained but modest recovery in 1999 and into 2000,” Bevan Graham said.

“New Zealand consumers remain strongly optimistic with the Consumer Confidence Index reaching 114 points. They believe they are better off financially than a year ago, are optimistic about their income prospects over the coming year, and are confident in the country’s economic prospects over the longer term”, said Richard Miller, Managing Director of strategic management consultancy McDermott Miller Limited.

“Consumer confidence in New Zealand is being driven up by the rising optimism of Auckland consumers and consumers in the populous and rich adjoining regions of Waikato and Bay of Plenty”, explained Richard Miller. “Consumers in this important regional engine of the New Zealand economy have improved their financial circumstances and expect rises in salaries, wages and business profits in the year ahead. They have just enjoyed the international limelight of APEC, anticipate flow-on economic benefits from increased tourism and look forward to sustaining growth with major tourism and leisure events, including the Americas Cup and the Millennium celebrations”, commented Richard Miller. “They have signalled elsewhere in the survey they will do ‘their bit’ by spending any ‘financial windfall’ on more holidaying and leisure consumption”, said Richard Miller.

“Although all regions are optimistic, consumer confidence in some is showing signs of faltering. In particular, Wellington, Canterbury and Otago consumer confidence has slipped several points. This is indicated by recent sluggish retail sales. Fear of rising costs and income reduction through wage and salary cuts appear to be the main reasons for consumers in these areas losing a measure of confidence. While they also look forward to enjoyable tourism and leisure events, this is offset to a degree by a pessimistic belief that New Zealand has the wrong economic policies to regain good economic times in the short term”, said Richard Miller.

“The latest WestpacTrust-McDermott Miller Consumer Confidence Survey results offer pointers to the way the election campaign may be fought” said Richard Miller. “The history of Consumer Confidence Surveys on both sides of the Tasman suggests that when consumers are persistently optimistic they are more likely to support retention of the Government of the day. This may be the current situation with consumer confidence strongly optimistic now for four continuous quarters (rising more than 16 points over the year)”.

“But a paradox has appeared in the regional responses which could negate this ‘rule’”, observed Richard Miller. “Consumers in all regions are much more confident about the economic prospects in their own regions than they are about the prospects for the national economy. Auckland consumers exhibit an extreme version of this ambivalence believing they will thrive financially and economically while being pessimistic about the economic prospects for the rest of the country. A potentially rewarding electoral initiative could be to unify disaggregated and increasingly divergent regional sentiment into stronger national consumer confidence in the New Zealand economy”, suggested Richard Miller.

ENDS

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