Consumers resilient but confidence still slips

A measure of consumer confidence has fallen back to levels similar to those at the start of the year, but after the shocks of recent weeks consumers are showing more resilience than expected.

The Westpac McDermott Miller consumer confidence index for the September quarter, published today, fell from 119.3 to 114.1, unwinding gains made in the June quarter.

The survey was carried out between September 1 and 12, with a number over 100 indicating more optimists than pessimists.

Westpac chief economist Brendan O'Donovan said the collapse of South Canterbury Finance and the 7.1-magnitude Canterbury earthquake had the potential to weigh heavily on confidence.

"The fact that confidence has not fallen by more implies a resilience amongst consumers that we had not anticipated," Mr O'Donovan said.

For most consumers, the weak housing market, higher-than-expected unemployment, and deteriorating business confidence would be more important than good news about higher commodity prices and the associated increase in Fonterra's milk payments.

Upcoming tax changes had also been causing some angst, he said.

While substantial income tax cuts were on the way, the impending increase in GST had garnered far more of the media attention.

Against that backdrop, it was perhaps surprising that confidence had not fallen by more.

Despite the September 4 earthquake, confidence in the Canterbury region lifted by almost 6 points in the latest quarter to 120.6, making Canterbury consumers the most confident in the country, Mr O'Donovan said.

That seemed counter-intuitive, he said, pointing out the possibility of a bias in the region as only those who could get into their home to answer their phone, and were willing to do so -- those less affected or traumatised -- would have taken part.

But, even if the Canterbury result was removed from the survey, it did not materially change the aggregate index.

"That suggests that spending growth will moderate in the near term, but it won't fall out of bed," Mr O'Donovan said.

The main factor in the fall in the index was a sharp drop in consumers' perceptions of the short term economic outlook. A net 3% of respondents now expected bad economic times during the next 12 months, compared with the net 16% who had expected good economic times in the June survey.

But the proportion of respondents expecting good economic times during the next five years rose to a net 54.5%, up from a net 48% in June.

Confidence in the medium term outlook was close to the record high 63% of September last year, and was well above the survey average of 31%, Mr O'Donovan said.