The Westpac McDermott Miller consumer confidence index rose 4.7 points to 110.7 in the December quarter. This follows sharp declines earlier in the year, and returns the index to around average levels.
“What stands out is that households’ appetite to spend has increased, and low interest rates are clearly playing a role,” said Westpac senior economist, Satish Ranchhod. “Combined with an improved outlook for the coming year and low inflation, low borrowing costs are making it very attractive for consumers to purchase big ticket items like home furnishings. This signals a bumper Christmas season for many retailers.”
However, Ranchhod did sound a note of caution. “Households will need to be careful that Christmas cheer doesn’t result in a nasty hangover in the New Year. Low interest rates mean that many households are currently less concerned about paying down debt. But growth is set to slow over the coming year and unemployment is likely to increase. It’ll be important for households to ensure that they keep debt and borrowing levels manageable.”
Gains in confidence were widespread in December, with households across the economy feeling more optimistic. There was a particularly sharp increase in confidence in rural regions, a result that was likely contributed to by the increases in some commodity prices in recent months.
“Among the major urban centres, Auckland remains the most optimistic, and there has been a solid lift in sentiment in Wellington. However, confidence in Canterbury has softened, with households there noting concern around the economic situation. That’s not surprising given the advanced state of rebuild spending. The rebuild has been a big driver of growth over the past few years. While reconstruction spending will remain strong for some time, we have seen activity levelling off,” said Ranchhod.
“There was a rebound in the confidence of NZ consumers in December, revealed by a 4.7 point increase in the Westpac McDermott Miller NZ consumer confidence index (CCI) to 110.7 in December 2015,” announced John McDougall, director of forecasting at strategy and economics consultancy, McDermott Miller. “While the December result is still 4.2 points below the level prevailing last Christmas, it marks the largest quarterly increase since December 2013.
“The lift in consumer confidence was largely driven by a return to positive sentiment about the short-term prospects for the NZ economy, with a net 7.7 per cent now expecting good times over the coming year, a sharp contrast with the net 15 per cent expecting bad times in September.”
Among those consumers expecting good economic times over the next year, the most commonly cited reason for their view was a belief in “effective government economic policy”; only 10 per cent credited “better export prospects”. Among those expecting bad economic times, the most common reason is “wrong government economic policies” at 40 per cent followed by “low dairy prices” at 21 per cent.
Consumers in rural areas (index 109.1) are slightly less confident than those in metropolitan centres (112.6), and are less positive about NZ’s short term prospects (net two percent expecting good economic times over the next year versus net 12 per cent). As could be expected, “low dairy prices” are more frequently cited as reason for negative sentiment about NZ’s short term economic prospects by consumers in rural (26 per cent) than in metropolitan centres (18 per cent).
“Confidence amongst consumers employed the public sector remains, at 115.2, below that of consumers employed in the private sector (117.2), but the jump from September in the former group was considerably greater (14.3 points) than the latter (9.0 points), narrowing the spread between the two groups to only two points,” said McDougall.
“A net 15 per cent of consumers in the public sector expect good economic times over the next year (compared with a net 28 per cent in September expecting bad times), greater than the net 12 per cent of consumers in the private sector expecting good times. Consumers employed in the public sector with positive views on NZ’s short term economic prospects are more likely to credit ‘effective government policies’ for their positive outlook (32 per cent) than are private sector consumers (27 per cent).
“The return to strongly optimistic levels of consumer confidence bodes well for strong retail sales in the remaining Christmas period and for leisure and holiday spending over the coming weeks. The increase in the net percentage of consumers thinking now is a good time to buy major household items (from 20 per cent in September to 26 per cent in December) is further comfort for retailers.”
The survey was conducted over December 1 to 11, with a sample size of 1565. An index number over 100 indicates that optimists outnumber pessimists. The margin of error of the survey is 2.5 per cent.
The week before Christmas has the most transaction volumes, especially Christmas Eve. Paymark figures have recorded the second year-on-year spending increase in the lead-up to the Christmas period.
Last December, spending in the first 22 days of the month was 4.6 per cent up on the same period in 2013. The expectation is that Kiwis are spending more this year than last year.
