Consumer confidence falls to lowest in 18 months as households remain cautious on spending, Westpac survey shows

Consumer confidence fell in the December quarter to its lowest level in 18 months and is likely to reinforce the Reserve Bank's view that consumer spending will remain weak over the coming year, the Westpac McDermott Miller Consumer Confidence Survey shows.

The survey's confidence index fell for the second consecutive quarter, by 5.8 points to 108.3 in the December quarter from September. However the index remained above 100, suggesting more optimism than pessimism among respondents.

“Consumer confidence has fallen to its lowest level in eighteen months,” Westpac senior economist Donna Purdue said. “Moreover, the fall in confidence is widespread, with every income group, both sexes and almost every region showing declines. That means consumer spending is likely to remain fairly modest over the Christmas period,” Purdue said.

A combination of factors were possibly contributing to consumers increasing unease, including the early onset of drought in Northland and Waikato, the ongoing slump in the housing market (at least through to October), the rise in GST from 12.5% to 15% on October 1, and rising fuel prices in excess of GST, Purdue said.

"Add in the hard reality of life after the Canterbury earthquake (remembering that confidence in the Canterbury region actually lifted in the immediate aftermath of the earthquake according to our survey), and the Pike River Coal Mine disaster, and it is not hard to see why confidence is down," she said.

Despite recent income tax cuts, consumers had become more despondent about their own personal financial situation.

"A net 22% of respondents said they were worse off financially than a year ago, up from a net 17% last quarter, and the most since the June 2009 quarter. In terms of the coming year, consumers remain optimistic, with a net 8.5% expecting their own financial situation to improve over the next 12 months. However, that is down from 12.8% in the September quarter and the lowest since March 2009," Purdue said.

“Consumers have clearly become more cautious over the past few months, and indeed over the past year, despite falling unemployment, lower income tax rates, strong commodity prices (particularly in the dairy sector), and lower fixed term interest rates," she said.

“But even though these confidence figures suggest that consumers will remain cautious in the very near term, we continue to hold the view that consumer caution will not be sustained through 2011. As the economy gathers momentum over the coming year, bringing more jobs and income growth, we expect growth in consumer spending to match that of income, growing by around 2-3% per annum in real terms.”

(Update adds chart that also shows ANZ Roy Morgan monthly consumer confidence released yesterday)