A measure of consumer confidence is at its second highest level in 3-1/2 years, raising the possibility that some cheer could be heading the way of hard-pressed retailers.The Westpac McDermott Miller consumer confidence index for the June quarter, publish
A measure of consumer confidence is at its second highest level in 3-1/2 years, raising the possibility that some cheer could be heading the way of hard-pressed retailers.
The Westpac McDermott Miller consumer confidence index for the June quarter, published today, rose to 119.3 from 114.7 in the previous three months.
An index number over 100 indicates more optimists than pessimists, with the long-term average at 111.6.
Westpac senior economist Donna Purdue said consumer spending had been a notable weak spot in the economic recovery so far this year.
"However, with confidence at current levels, we expect that situation will prove temporary," she said.
The improvement in confidence was reasonably broad based in the latest quarter, with the most influential factor a sharp improvement in consumers' perceptions of their current purchasing power.
A net 31% of respondents said now was a good time to buy a major household item, up 10 points from the March quarter and the highest reading for that component since 2005.
The pending October 1 GST increase was likely to be a factor in that response, with households widely expected to bring forward purchases of big-ticket items, Mrs Purdue said.
Also fewer respondents felt they were worse off than a year ago, dropping to a net 14% who felt they were worse off, from 22% the previous quarter.
"This is the least pessimism respondents have shown toward their current financial position in 2-1/2 years and, combined with consumers' continued optimism about their finances in the coming year, bodes well for stronger and more broad-based spending ahead," Mrs Purdue said.
A net 16% of respondents said there would be good economic times in the coming year, up from a net 10% in the March quarter, while a net 48% of respondents expect good economic times in New Zealand during the next five years, similar to March.
The survey found 37% of respondents expected a positive effect from tax changes in the budget, 28% expect a negative effect, and 24% said they expected no effect.
Respondents in the upper socioeconomic group were the most upbeat about the tax changes, with 42% saying they expected the changes to be positive, and 25% expecting them to be negative.
In contrast, in the middle socioeconomic group 23% of respondents said they think the changes will be positive, while in the lower socioeconomic group the figure is 28%.
People aged 50 or over were more pessimistic than younger folk about the financial impact of tax and benefit changes.
A note from Mrs Purdue and Westpac chief economist Brendan O'Donovan said at least part of the improvement in confidence this quarter could be put down to upcoming changes in tax policy.
"The age and income split from the survey matches our assessment of how the tax changes are likely to affect different groups," the note said.
"Lower income tax is a clear benefit to most people, but more so for high income earners. And out assessment is that the tax changes will temper the rate of house price inflation, which is a boon to the young and a detriment to the old."
