Confidence falls sharply in December from policy and economic concerns

New Zealand consumer confidence dropped sharply in December, falling below historical averages, with households concerned about the general economic environment and their personal financial situation.

The Westpac McDermott Miller consumer confidence index fell 5 points to 107.4 in the December quarter, below the long-run average of 111.4. A reading above 100 indicates optimists outnumber pessimists, and the survey has been above that level since March 2011. The present conditions index fell 4.5 points to 107.7 while the expected conditions index dropped 5.4 points to 107.2.

"Given the suddenness of the drop in confidence, it is likely that the outcome of September's election has had a big impact on household sentiment," Westpac Banking Corp senior economist Satish Ranchhod said. "The change in government signals a very different policy environment over the coming years, including changes to family support payments, minimum wage levels, environmental policy and housing market policies. Against this changing backdrop, it's not surprising that many households are a little apprehensive about how the economic environment will shape up over the next few years."

The drop in confidence was largest in better-off households, with confidence down 10 points below average in households earning more than $70,000 per annum, while confidence rose 3 points among households earning less than $70,000 a year.

A net 4.9 percent of the 1,555 people surveyed between Dec. 1 and Dec. 10 expected the economy to improve over the coming year, down from 13.4 percent in the previous quarter, while a net 14.3 percent see better times for the economy over a five-year period, down from 18.6 percent in September.

The number of households who think now is a good time to purchase a major household item dropped further, down 5.7 points to 13.4 percent in the quarter, below the long-run average of 26.3 percent.

Ranchhod said the change in government hadn't been the only important development in recent months, with gross domestic product growth slowing as some of the key drivers of economic activity from recent years eased off. Households are worried about their own financial situations, and that nervousness has put a dampener on holiday spending plans, with more households likely to use a windfall on savings and paying down debt.

"This increase in household nervousness comes atop of signs that the migration cycle has turned," he said. "And with big changes in housing market policy planned over the next few years, a period of weak house price inflation is on the cards. Together, these conditions signal a softer environment for retail spending over the coming year, especially in areas like household furnishings."

Confidence fell furthest in New Zealanders aged between 18 to 30 years, and is now well below the long-run average, while the drop was smaller amongst older New Zealanders. Men reported a bigger drop in confidence about the outlook for the economy than women, and consumer confidence had particularly strong falls in metropolitan areas, Westpac said.

"This may be related to concerns about the strength of the housing market, with the new government planning to roll out a suite of policies over the next few years to dampen housing market pressures," Ranchhod said. "Confidence has also fallen among rural households, but only slightly. This is interesting as it suggests that the new government's focus on regional development has outweighed concerns about environmental and regulatory changes among rural confidence."

(BusinessDesk)