Consumer confidence weakens as petrol prices rise, interest rates rise, housing market softens

Watch on our video page here Watch on YouTube here Consumer confidence weakened slightly in the March quarter from the December quarter and consumers remain "deeply pessimistic" about their own personal finances as petrol prices rose, interest rates rose and the housing market softened, the Westpac McDermott Miller survey shows. The survey also asked what New Zealanders thought about potential tax changes that may be announced in the May 20 budget, including a possible GST increase, personal tax cuts and property tax changes. It found an equal number overall who thought it would be good or bad, while older and poorer respondents were most worried about losing from any changes because of either the GST increase or property tax changes. See the full confidence results here. The full press release is below The Westpac McDermott Miller Consumer Confidence Index fell slightly in the March 2010 quarter, to 114.7 from 116.9. An index number over 100 indicates there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists. The margin of error in the survey is 2.5% at a 95% confidence interval. The survey was conducted between 1 and 15 March, 2010. “Not much has gone the consumer’s way in recent months. Interest rates and petrol prices are up, unemployment has worsened, and house prices are falling again,” said Brendan O’Donovan, Chief Economist at Westpac. “People are still optimistic about the recovery, but less so than last quarter,” he said. Most of the decline this quarter came from an adjustment to the Future Conditions Index, which dropped to 124.7 from 128.8 in December 2009. Consumers remained deeply pessimistic about their own financial situation. A net 22% of respondents said they were worse off than a year ago, compared to 21% last quarter. The only part of the survey to show improvement was consumers’ assessment of whether now was a good time to buy a major household item, with a net 21% saying yes. “The high exchange rate is about the only thing that worked in consumers’ favour recently, by driving down prices of many goods, including consumer durables like cars and appliances,” commented Mr O’Donovan. Consumer confidence at its current level is consistent with a steady, but unspectacular, recovery in consumer spending. Westpac expects the Reserve Bank will remain comfortable with its announced plan to begin increasing the OCR around the middle of 2010. This quarter an additional question was included in the Consumer Confidence survey: “If there are changes to the tax and benefit system over the next 12 months, do you expect it will have a positive or negative effect on your overall financial situation?” The results were evenly split, with 33% expecting a positive effect, 34% expecting a negative effect and 22% saying they expected no effect. Respondents in the upper socio-economic category were the most positive about the prospective tax changes, with optimists outnumbering pessimists by two percentage points. By contrast, the lower socio-economic group was decidedly pessimistic about the changes, with negative responses outweighing positive by 18 percentage points. People aged 50 or over were also markedly more pessimistic about the financial impact of possible tax and benefit changes than younger people. The tax changes have not been formally announced, but the hints so-far released indicate that income tax will be lower, GST will be higher, the rules on property investment will be tightened, and national superannuation will be increased. “The tax changes are likely to temper the rate of house price inflation,” said Mr O’Donovan. “That’s a boon to the young and a detriment to the old. In addition, higher GST works against those with substantial savings. So it is no wonder younger people are more positive about the changes than the more senior age group.” “New Zealand consumers remain optimistic, but their confidence is ebbing in the face of a persistently sluggish economy”, announced Richard Miller, Managing Director of Strategic Planning Consultancy McDermott Miller. “The Westpac-McDermott Miller Consumer Confidence Index in March 2010 stands at 114.7, slightly over two points lower than in December 2009 and down 5.6 points from September 2009, but up dramatically (by 18.7 CCI points) since this time last year”. “The outlook of New Zealand consumers is much more optimistic than at this time last year (up from a pessimistic low of 96.0 CCI in March 2009 to 114.7 now)”, noted Richard Miller. “In March last year a massive 67% of consumers believed New Zealand was in for bad economic times over the year (then) ahead and only 10% hoped for good times. This March there are more optimists than pessimists on whether there will be good economic times in the year ahead (40% now expecting good, and 30% expecting bad, times).” “Only non-working and lower income consumers groups are now outright pessimistic (99.8 and 98.9 respectively),” Richard Miller said. “In contrast, consumers in two regions – Waikato and Canterbury – have become more optimistic over the March quarter (up 4.2 to 113.0 in the former and 1.1 in the latter). Waikato consumers may be feeling better off as historically high dairy payouts work their way through the regional economy. Canterbury consumers seem to be benefiting from their region’s buoyant tourism industry”, he observed. “Public servants remain cautiously optimistic on 113.1 Consumer Confidence Index points, while the confidence of consumers working in the private sector has dropped 5.5 points to 118.0”, Richard Miller noted. “The difference in sentiment between private and public sector employees stems from their respective financial expectations in a year’s time. A net 26% of private sector employees expect to be better off, but only a net 10% of public sector employees expect the same. Private sector employees clearly have higher expectations of personally experiencing the benefits of the nascent economic recovery”. “The Westpac McDermott Miller Consumer Confidence Index has tracked remarkable changes in consumer sentiment in New Zealand over recent years: from shock and near collapse of confidence as the country’s buoyant economy was negatively impacted by the global financial crisis in late 2008; bouncing back with relief into optimism in late 2009 as economic depression was avoided; and more recently turning into declining optimism as the tangible benefits of economic recovery fail to materialise for most consumers”, suggested Richard Miller.