Consumer confidence dipped in December though remains above recent lows, index shows

Consumer sentiment eased in December but remains well above its recent lows, according to the latest ANZ-Roy Morgan Consumer Confidence Index.

Following a six-month high in November, the index has fallen 4 points this month to 118.7, which is in line with the historical average. Current expectations held firm but consumers were less certain about the future.

"Consumer confidence put its feet up in December after making solid gains through the second half of the year," says ANZ Chief Economist Cameron Bagrie.

While confidence wobbles around from month to month, what matters is the level which remains respectable, he says.

The fall in confidence was across all regions, particularly in regional South island.

Expectations for the economy for one year ahead fell 9 points to +6 which is in line with its historical average while expectations further out to five years ahead fell five points to +17 which is slightly below the historical average.

When combined with business confidence, the overall confidence composite still points to respectable prospects for the economy heading into 2016, Bagrie says.

A net 6 percent of respondents feel financially better off than a year ago, down 3 points, while expectations 12 months ahead decline by a similar amount to a still positive +26.

There's good news for retailers with a net 38 percent believing it's a good time to buy a major household item which is a six-month high.

"Softer future expectations suggest consumers aren't getting ahead of themselves just yet. To a degree this is encouraging; borrow-and-spend style growth can only take us so far - just like the Christmas presents you buy on your credit card, you have to pay it back," Bagrie says.

The reasonable consumer confidence and the same for business sentiment signals respectable rather than stellar growth over the months ahead, he says.

Inflation expectations fell back to 3.1 percent reversing last month's increases while house price growth expectation went the other way, bouncing to 4.9 percent and unwinding last month's fall. Despite indications the heated Auckland market is slowing down, expectations of Auckland house price growth surged to 6.5 percent, a four-month high while falling in most other regions.

Bagrie said the fact consumers are feeling a little more cautious about the future shouldn't necessarily be seen as a bad thing. A key theme driving housing activity, in particular, of late has been a return to the borrow-and-spend style growth with household credit again running ahead of incomes.

"To be fair, this is the very behaviour that monetary policy easing it trying to achieve to help generated a spending and inflationary lift," he said. "But with debt-to-income ratios already elevated, household saving turning negative again and the current account deficit on a widening trajectory, this can only be a temporary phenomenon."

(BusinessDesk)