Consumer confidence jumps to highest in three years

New Zealand consumer confidence surged to its highest level in three years in June, buoyed by improving economic prospects, rising house values, low interest rates and falling prices, according to the latest Westpac McDermott-Miller Consumer Confidence survey.

The index jumped to 116.6 in the June quarter, up from 110.8 in March and the highest level since June 2010 when it touched 119.3. The survey of 1568 households took place June 1-10. A reading above 100 indicates more optimists than pessimists.

"People are shifting out of saving mode and into spending mode," Westpac chief economist Dominick Stephens says in a statement. "The survey also chimes with our long-held view that low interest rates and a rising housing market would boost spending."

New Zealand's central bank last week left the official cash rate at its record-low 2.5 percent as governor Graeme Wheeler eyes a bubbling property market with its potential to fuel debt-driven consumer spending if households feel wealthier, especially because of the dampening effect of an "over-valued" kiwi dollar on the price of imports.

The consumer confidence survey showed the number of people who would rather spend than save a cash windfall is the highest since 2004. The shift was most pronounced among older households and in Auckland, which had benefitted from the housing market upturn.

Most components of the index rose with the biggest improvement in households' near-term economic outlook. The net percentage of households expecting good times over the coming year surged to 13.8 from negative 5.8, the first positive reading since June 2010.

"Economic optimism has surged, prices for many consumer goods have been falling and sentiment in rural regions has picked up as the focus shifts from the immediate impact of drought tot the prospect of higher dairy payouts," Mr Stephens says.

The survey showed a net 10.1 percent expect their own finances to improve, up from 7.2 in the previous survey. A net 35.4 expect their longer-term economic outlook to improve, up from 32.1, and a net 34.4 percent thought now is a good time to buy a major household item, up from 30.8.

Meanwhile, households' assessment of their current financial situation slipped to negative 10.8 from negative 10.4, although it remains the second highest level since December 2007.

A high level of consumer optimism had been sustained for three consecutive quarters and was now widely based with almost all demographic and income categories of consumers, says Richard Miller, managing director of strategy planning and economics consultancy McDermott Miller.

"Rising consumer optimism, coupled to growing confidence that household finances are more secure, points to a resurgence of consumer spending in the second half of 2013.

"Widespread awareness that retailers are offering attractive sales, and that the high kiwi dollar ensures low prices, should spur consumer spending in the months ahead," he says.

(BusinessDesk)