Consumer confidence slumped further in March as consumers took on board the weight of negative recent economic news, according to the latest Westpac McDermott Miller survey.

Confidence for the March quarter is down 5.3 points from December to slip into slightly pessimistic territory at 96.0 points.

An index number over 100 indicates more optimists than pessimists, while a number under 100 indicates net pessimism.

It is the second lowest confidence reading since 1998, with the lowest reading in the June quarter last year when the index slumped to 81.7.

However, given the sheer volume of negative news consumers have been subject to over recent months, confidence has remained remarkably resilient says Westpac senior economist Donna Purdue.

“Confidence remains well above the low reached in June last year (when the index was at 81.7), when high interest rates, rising petrol prices and other cost measures were putting the squeeze on consumers,” Ms Purdue says.

Bad news from offshore has dominated news headlines, with nearly every day bringing another tale of woe from one of New Zealand’s major trading partners – such as the loss of 650,000 jobs in February alone in the US.

In New Zealand the news has been far less sensational, albeit still disturbing, which raises the question “as to whether New Zealand consumers are being staunch or whether they are simply in denial”, Ms Purdue says.

New Zealanders appear less pessimistic than our international trading partners, with confidence among US consumers in the sewer at 56.6 on their index, while Australians’ index is at 85.6 despite their relatively sunnier economic conditions.

Plausible explanations why New Zealand consumers are not suffering as much depression include the substantial monetary and fiscal stimulus entering the economy, with the OCR cuts largely being passed through to borrowers in contrast to the US and the UK. In terms of fiscal policy, the second round of tax cuts commences on April 1.

That, in addition to the government’s recently announced initiatives on infrastructure spend, could be driving some of the optimism in the long term outlook for New Zealand – a net 50% of respondents expect good economic times over the next five years.

New Zealanders’ lack of exposure to financial assets such as equities (only around 20% of total household assets) is another possible explanation for our low level of pessimism, as the massive declines in share markets are affecting us less than some of our trading partners.

Likewise, the New Zealand housing market is experiencing a mild correction relative to the US, UK, and much of Europe.

New Zealand also does not suffer from the over-supply of housing causing so much strife in the US; in fact we are at risk of a shortage of housing in the coming few years which will likely provide support to house prices.

Regardless of international comparisons, consumer spending is likely to stay weak at best over the coming months, with any spare cash more likely to be used for savings or paying off debt.

The survey’s data is consistent with the Reserve Bank’s last Monetary Policy Statement (MPS) forecasting weak consumer spending throughout this year, meaning the RBNZ is unlikely to change future MPS settings.

Westpac nevertheless disagrees with the central bank’s belief in a recovery in the second half of the year, especially if the New Zealand dollar’s recent strength is sustained, which implies further interest rate cuts if the Reserve Bank goal of easier monetary conditions is to be achieved.

“We remain of the view that the OCR will reach 2% by the middle of this year,” Ms Purdue says.

All regions and almost all demographic groups are now pessimistic, McDermott Miller managing director Richard Miller says,

“The notable exceptions are consumers with a household income over $100,000 (who register 100.6 on the index) and consumers aged 18-29 years (105.3). They are significantly more optimistic about their financial prospects in the year ahead and slightly more optimistic about the New Zealand economy over the short term.”

JPMorgan economist Helen Kevans says they expect New Zealand GDP to contract for the fourth consecutive quarter at -0.9%, and that contraction will continue for at least six straight quarters.

Unemployment will also rise to 7% by year end predicts Ms Kevans, from a five year high of 4.6% at present.