NZ consumer confidence drops in second quarter as dairy woes weigh on economic outlook

 New Zealand consumer confidence fell in the second quarter to its lowest level in more two years, as declining dairy prices weighed on optimism over the economy's outlook.

The Westpac McDermott Miller Consumer Confidence Index fell to 113 in the three months ending June 30, from 117.4 in the March quarter, and is at its lowest level since March 2013. An index reading above 100 indicates optimists outnumber pessimists, and the historical average is 111.5.

Consumers were more optimistic about present conditions, with the measure rising 1.9 points to 115.1, though were more pessimistic about the future with the expected conditions index dropping 8.5 points to 111.6, below the historical average of 113.6.

The survey comes after dairy prices last week fell to their lowest level in six years at the GlobalDairyTrade auction. Earlier this month the Reserve Bank cut the official cash rate 25 basis points to 3.25%, with governor Graeme Wheeler citing the slump in global dairy prices and its impact on the nation's terms of trade as weighing on the economic outlook. The Reserve Bank estimates a quarter of dairy farmers are operating in negative cashflow.

"The drop in consumer confidence isn't surprising, given the steady drumbeat of bad news around the dairy sector," Westpac New Zealand chief economist Dominick Stephens said. "The reality of a lower dairy payout is only starting to hit farmers' cashflows, and the recent drop in the exchange rate will result in a range of imported goods becoming more expensive. We wouldn't be surprised to see confidence fall further from here, though lower mortgage rates will provide relief for borrowers."

The decreasing optimism was reported in both urban and rural sectors, the report showed.

The biggest change was respondents' expectations for the near-term economic outlook, with a net 4.8% now expecting mainly good economic times for the year ahead, down from 23.8% three months ago.

The net percentage expecting mainly good economic times over the next five years fell to 24.3% from 26.8%, while the net percentage expecting their own finances to improve over the year slipped to 5.9% from 9.8%.

Respondents were more optimistic on current conditions than three months ago. A net 1.4% said their financial situation had improved over the past year, from a net 1.4% saying their situation had deteriorated. A net 28.8% said it was a good time to buy a major household item, compared to 27.8% in the March quarter.

The survey ran between June 2 and 13, with a sample size of 1581.

(BusinessDesk)