New Zealand Dancing To Its Own Confident Tune … For Now
Consumer confidence has taken another positive step forward and is now at its highest level since early 2000 according
to the March quarter WestpacTrust - McDermott Miller Survey of Consumer Confidence.
The confidence index now stands at 121.6, up from 113.8 in the December quarter and the 98.1 recorded in its trough as
recent as mid-2000. This is a clear trend back to a favourable consumer environment. A value of 100 on the index means
that the number of optimistic respondents equals the number of pessimistic respondents.
Following a positive end to 2000, consumer confidence has continued to grow in New Zealand across virtually all regions.
More recently, larger urban areas have taken back the ‘most confident’ title from the export-led rural regions.
Wellington tops the regional confidence poll, with Auckland close behind. It is only those regions that have lacked
rainfall in recent months where confidence has dried up.
“The rise in confidence is fantastic, and is consistent with recent local economic developments. But New Zealand is now
clearly out of step with the rest of the world, with confidence on the rise here, in contrast to the outright pessimism
we have seen in the US and Australia,” said Adrian Orr, WestpacTrust Chief Economist.
“Household disposable incomes have been bolstered by employment and wage growth. Meanwhile debt-servicing costs have
been eased through lower interest rates. The exchange rate has also stayed near its record low level, leading to a
continued inflow of export revenue and tourists. Commodity prices have also held up well, despite clear signs of a
slower global economy. In all, there have been many positive developments,” said Mr Orr.
“However, there are some very concerning issues ahead. An ever-lower exchange rate is not a sustainable means by which
to generate wealth, as New Zealand has proved to itself over earlier decades. Meanwhile, the global economy is
deteriorating rapidly, led down by a slowing United States economy. New Zealand will not be able to avoid the eventual
negative impact on its trade. Household debt levels are also high, constraining just how far New Zealand can grow on its
own,” said Mr Orr.
“The impact of the global slowdown is still some months away, giving the Reserve Bank of New Zealand time to respond
with lower interest rates yet. The decline in inflation expectations in this survey will give the Reserve Bank
confidence to continue to ease policy. The Government will also need to preserve its operating surplus, giving the
business sector room to expand.
“Meanwhile, if you are looking for an optimistic economic environment anywhere in the world at present, New Zealand is
the place,” Mr Orr said.
Most survey respondents point to the recent export boom as the source of their renewed confidence. Rises in employment
and wage growth also feature as key reasons to be happy. Of the reasons for being less optimistic, ongoing concerns
about government policy and rising cost pressures continue to dominate.
A very positive sign for domestic spending going ahead is the surge in respondents saying that now is a good time to buy
a ‘big ticket’ item. Consumers appear increasingly willing to follow through on their rise in confidence with actual
spending.
“New Zealand consumer sentiment is firmly optimistic,” reported Richard Miller, managing director of McDermott Miller
Limited. “The March quarter WestpacTrust – McDermott Miller Consumer Confidence Survey indicates for the second quarter
in a row a strong increase in consumer confidence.
“While the increase in consumer optimism is universal, it is significantly stronger in some quarters.
“The secondary centres are more optimistic than metropolitan or rural areas. Metropolitan areas are the most optimistic
group at 123.8 on the Consumer Confidence Index, but secondary centres are catching up with twice as large an increase
in optimism as the metropolitans and they now stand at 120.6.
“Wellington is more confident than the other metropolitan areas experiencing an increase of 13.9 index points compared
to Auckland’s 1.8 and Christchurch’s 5.2,” he explained. “Interestingly, the non-working and upper income groups also
both increased in confidence by ten or more points contrasting with lesser increases in confidence by low and
middle-income consumers.
“In the December quarter we read the dramatic lift in consumer optimism as a sign of the volatility of consumer
sentiment in uncertain economic times. In retrospect, we can now see the sharp dip in consumer confidence in the
September and June 2000 quarters as an aberration,” Mr Miller said. “Consumer sentiment fractured temporarily during
that period with heavy publicity focused on purported loss of business confidence both in the economy and the
Government’s economic leadership.
“The reality has been quite different. During the last two quarters consumers have witnessed an improvement in New
Zealand’s terms of trade, a surge of exports in the primary sector with consequential increased rural incomes, a
loosening of monetary controls which have reduced interest rates and pressure on household incomes, and resurgent
employment growth.
“The prospect of better exports, further economic recovery and, particularly in the metropolitan areas, higher business
confidence, underpins consumer optimism that New Zealand will experience good economic times over the next 12 months,”
he said. “While there are some signs of uncertainty amongst rural consumers that export-led growth can be sustained in
the face of the rising costs of imports and weakening demand from trading partners, the general mood in New Zealand is
strongly optimistic.
“The result is that rural as well as urban consumers currently have both more money in their pockets and the confidence
in the future to spend it. This is borne out by the large number of respondents expecting to be better off in a years
time due to a salary or wage rise, improvement in financial commitments and the prospect of a non-working person in the
household beginning work. In contrast the much smaller number of respondents who expect to be worse off are primarily
concerned about a household member losing their job and costs rising more than their income.
“Consumer optimism has translated into strong retail spending since December. A record number of respondents believe
‘now is a good time to buy major household goods’ but there are signs that this is transitory. The survey indicates that
the consumers have been taking advantage of the post-Christmas sales and that those on lower incomes are ‘all spent
out’,” warned Mr Miller.
“Consumer sentiment in New Zealand has returned to near the optimistic level that prevailed for seven consecutive
quarters up to March last year. Whether consumer confidence will stabilise at this level over the remainder of the year
and generate sustained domestic demand depends upon the duration of the export-led economic recovery and holding down
prices. Once again the Reserve Bank in the juggler’s seat,” Mr Miller concluded.
ENDS