Consumer confidence fell 5.2 points in the September quarter as the global economic picture worsened, South Canterbury Finance collapsed into receivership and the Canterbury earthquake struck.
The September quarter Westpac McDermott Miller Consumer Confidence Index fell to 114.1 from 119.3 in June.
But, according to Westpac chief economist Brendan O'Donovan, the results of the survey are encouraging.
“The collapse of South Canterbury Finance and the 7.1 magnitude earthquake in the Canterbury region on 4 September had the potential to weigh heavily on confidence this quarter,” said O’Donovan.
“The fact that confidence has not fallen by more implies a resilience amongst consumers that we had not anticipated.”
Although confidence had fallen, consumers maintained a "healthy willingness" to spend.
"At the moment the ability to increase spending is being constrained by weak employment and wage growth. However, as income growth improves, we expect spending growth to pick up pace,” O'Donovan added.
The survey showed that perceptions of both current and future conditions had declined, with the key influence to the fall in consumer confidence a sharp drop in the short term economic outlook. Westpac and McDermott Miller did note that the fall in confidence implied growth in consumer spending would remain modest in the near term. They also said the confidence fall wasn't surprising.
"Since June, the economic news has taken on a more negative tone, particularly in the global arena where a marked mid-cycle slowdown has occurred in the US, Japan and China."
On top of this, two key domestic events had the potential to weigh heavily on confidence in the quarter. These were the collapse of South Canterbury Finance leaving taxpayers with a tab of almost NZ$2 billion, and the September 4, 7.1 magnitude earthquake in Canterbury. The survey was conducted between 1-12 September.
"In that respect, it is surprising that confidence hasn’t fallen by more," O'Donovan said.
"Certainly, the message seems to be one where consumers are weathering the recent spate of soft economic news (including a declining housing market and worse-than-expected unemployment) reasonably well."
Westpac and McDermott Miller cautioned that there was the possibility of bias among survey respondents in Canterbury. This was because only those who were physically able, ie they could get into their house to answer the phone, or willing, ie those less affected or traumatised, to respond did. The survey actually showed confidence in the Canterbury region rose by nearly 6 points in the quarter, making Canterbury consumers the most confident in the country.
"That seems counterintuitive given the magnitude of the shock just experienced in the region. Still, removing Canterbury from the survey results reveals that even in its absence, confidence remained reasonably resilient, falling 6 points in the quarter to 113.1," Westpac and McDermott Miller said.
Overall, confidence is now back down at similar levels to where it was at the start of the year. O'Donovan noted that although confidence has fallen, at current levels the Index remained above the long run average of 111.6 and is broadly consistent with annual average growth in real consumer spending of around 3%.
"Moreover, the level of the Index suggests that consumers still have a willingness to spend. At present, the ability to spend is being hampered by weak income growth. However, once that situation improves, as we and the Reserve Bank expect it will, it is hard to believe that consumers will not act. We continue to expect the pace of consumer spending growth to match that of income growth over the next couple of years," said O'Donovan.
An index number over 100 indicates there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists. The margin of error in the survey is 2.5% at a 95% confidence interval.