Westpac McDermott Miller survey finds consumer confidence flat in September quarter, but still optimistic. Your feeling?

The Westpac McDermott Miller Index of consumer confidence was unchanged at 112.0 in the September quarter from the June quarter, with an index number above 100 indicating optimists outnumber pessimists.

“New Zealand households continue to turn their focus to recovery,‟ said Westpac Chief Economist Dominick Stephens.

“While they remain cautious about their personal financial situation, they are becoming increasingly confident that economic prospects will improve over the coming year. Along with other recent business and consumer surveys, that bodes well for an ongoing gradual expansion in domestic spending," Stephens said.

“The survey did show a drop-off in longer-term economic confidence. This could be a reflection of some of the recent bad news we‟ve had around the global economy, or the fact that we‟re starting to see some of the longer-run costs associated with the Christchurch earthquake, such as upward pressure on insurance premia. But long-term economic optimism remains historically high and overall, today‟s data show confidence remaining on track.”

Underlying the unchanged headline confidence index, there were divergent movements in responses to the component questions.

Households' assessment of their current financial situation deteriorated slightly, and remains pessimistic on the whole (a net 18.8% of households think their situation has deteriorated over the past year, up from 18.3% in the June survey). However, a net 30.1% said now was a good time to buy a major household item, up from 26.0% in June.

Respondents' expectations for their own financial situation in a year‟s time became a bit more optimistic (a net 9.7% now expect things to get better, up from 9.0% in June), and the near-term economic outlook continued to improve, with a net 2.1% now pessimistic about the economy's prospects over the coming year, a lower percentage than the previous survey‟s 6.7%.

But the longer-term economic outlook, for the next five years, dipped quite sharply, from 50.0% in June to 41.2%. This is lower than the long-term economic outlook in the March survey, just after the Christchurch earthquake.

“Consumers have remained optimistic for two quarters in a row,” said Richard Miller, Managing Director of Strategic Planning Consultancy McDermott Miller. “The Westpac McDermott Miller Consumer Confidence Index still sits at 112.0. This contrasts with consumer pessimism in March 2011 (at 97.9) following the Christchurch earthquake and gloomy economic conditions.”

“While consumers‟ confidence in their own financial position has remained fairly static across quarters, the index has been buoyed by consumer perceptions of New Zealand‟s economic prospects over the next 12 months”, he said.

“In contrast, consumers' confidence in New Zealand‟s long-term economic outlook (the next five years) has declined, keeping New Zealand‟s overall consumer confidence static.”

Youngsters more positive

“18 to 29 year olds are the main group bucking this trend, jumping 15.8 points in this quarter, to be extremely confident at 126.4,” Richard Miller noted. “Comparatively, the 30 to 49 year group sit at 113.9, while the 50 plus age group lags further behind at 105.6. The main factor for 18 to 29 years olds‟ optimism is their beliefs in the economic outlook improving over the next 12 months and five years."

Some 42% of 18 to 29 year olds think New Zealand will have mainly good economic times over the next 12 months, compared to only 32% of all consumers, and 63% of 18 to 29 year olds think New Zealand will have mainly good economic times over the next five years.”

“Private sector consumers continue to be less pessimistic about economic times over the next twelve months (net 5%) than are public sector consumers (net 7%). On the other hand, public sector (net 42%) and private sector (net 49%) consumers remain almost equally optimistic about economic conditions in New Zealand over the next five years.”

“The main reasons given by New Zealand consumers who expect good, as opposed to bad, economic times over the next twelve months are that the recession will have less impact (16%), economic policies and tax cuts will have a positive effect (13%), and global economic conditions will improve (12%),” Richard Miller said.

“Metropolitan consumers are different, 14% cite ;tourism/major events attracting tourists' as their explanation for expecting good economic times over the next 12 months,” he noted.

“Unsurprisingly, this is even more pronounced in Auckland, with 'tourism/major events' being the most common reason given (16%) for good economic times over the next twelve months.”

“September 2011 is yet another quarter where consumers‟ belief that is a good time to buy major household items rose (net positive 30%). It is now at its highest level since June 2010, which suggests retailers may yet benefit in 2011. Rugby World Cup plus Christmas could mean a stronger finish to the year than has been experienced since 2007,” Richard Miller said.

Westpac is forecasting the Official Cash Rate will rise to a peak of 6%.