Consumer confidence jumps to 4 year high as short term outlook improves, Westpac says

Consumer confidence jumped to a four year high in the September quarter, the Westpac McDermott Miller Consumer Confidence Index showed. The dominant influence on the rise was a "sharp turnaround" in respondents' short term outlook for the economy, Westpac said. The index jumped 14.3 points from June to 120.3 in September. An index number of 100 indicates more optimists than pessimists, while a number under 100 indicates more pessimists than optimists. The result was well predicted by the twice-monthly Roy Morgan consumer confidence survey (see chart below). The index was last this high in March 2005 (126.7). "This is the second consecutive quarter that confidence has recorded a double digit gain "“ in the June 2009 quarter confidence lifted 10 points from 96.0 to 106.0," Westpac Senior Economist Donna Purdue said.

"However, back then consumers appeared to lack conviction that a recovery was on its way. Now, there is no doubt. Consumers, regardless of age, income group, gender, or region, are convinced that better times lie ahead," Purdue said.

All of the survey components recorded increases this quarter. But the dominant influence was a sharp turnaround in the short term outlook for the economy. A net 17% of consumers now expect good economic times over the coming year, up a massive 46 points from the June survey when a net 29% expected bad economic times. This is the second biggest quarterly improvement recorded for this component (the biggest being a rise of 56 points in the December 2000 quarter), and is the highest response since the March 2005 quarter. "A more upbeat global economic outlook and increasing talk that the NZ recession had ended will no doubt have fed these improved expectations," said Mrs Purdue. "Domestically, rising house prices and signs that the labour market has held up better than expected will also have been influential factors." The other major mover this quarter was consumers' assessment of their financial position in a year's time. A net 24% of consumers are anticipating that the next year will be more lucrative "“ a seven year high for this series, and up from a net 13% in the June quarter. The strength of this result is surprising given our expectation that unemployment will edge higher over the coming year, thus contributing to slower wage growth, and suggests that the turn around in the housing market and the economy generally is playing a part. Perceptions around the longer term economic outlook continue to reach new highs, although the gains were far less spectacular than for the short term outlook. Still, an overwhelming net 63% of respondents think there will be good economic times in the next five years. Gains in the remaining two component questions were far more muted, and paint a more sobering picture. A net 22% of respondents still say they are worse off financially now compared to a year ago, while only a net 19% of respondents say now is a good time to buy major household items "“ up just 4 points from the June survey (the smallest increase of all the component questions) and well below the long run average of +27% on this measure.