New Zealand: Consumer confidence sinks to 18-month low
December 16, 2010
Consumer confidence fell to its lowest level in 18 months. The early onset of drought, the ongoing slump in the housing market as well as a rise in the goods and services tax from 12.5% to 15.0% in early October contributed to weaker levels of confidence. The Westpac McDermott Miller consumer confidence index dropped to 108.3 points in the fourth quarter, which was well below the 114.1 points observed in the third quarter, and represented the lowest level since the second quarter of 2009. Owing to the fourth quarter drop, the index fell below the long-term average of 111.6 points and neared the 100-point threshold that separates optimism from pessimism. According to the survey, the fall in consumer sentiment was broad-based, as all five components of the index declined over the third quarter. In particular, consumers were less optimistic about their purchasing power, with a net 16.6% of consumers responding that now is a good time to buy major household items, compared to a net 23.9% of consumers in the previous quarter. According to the survey, the reading represents the lowest level in this particular sub-component since the second quarter 2009, suggesting a lower willingness to spend in the months ahead. Moreover, in the fourth quarter survey, consumers reported a more pessimistic assessment of both the short and long-term economic outlook. According to the survey, a net 9.7% of respondents expect bad economic conditions for the next 12 months, worsening from a net 3.0% observed in the third quarter. Simultaneously, a net 48.0% of consumers expect good economic conditions over the next five years, which is down from the previous quarter's net 54.5% of respondents. Furthermore, consumers were less upbeat regarding the economic outlook of their own personal financial situation, as a net 22.0% of respondents considered themselves to be worse off compared to last year (Q3: 17.0%). In addition, consumers remain less optimistic about their financial prospects, with a net 8.5% expecting their own financial situation to improve over the next 12 months (Q3: 12.8%).
Author: Ricardo Aceves, Senior Economist