Consumer confidence at 17-year low

Consumer confidence, already at a decade low in the March quarter, plunged further in June quarter to its lowest since the recession of 1991, according to the Westpac McDermott Miller survey.

The index fell to 81.71 from 96.5 in March and 110 in December.

A number over 100 indicates more optimists than pessimists, while a number under 100 indicates pessimists outnumber optimists.

Westpac economist Donna Purdue called this quarter's nose-dive "jaw dropping".

Consumers have been hit by soaring petrol and food prices, higher interest rates and wealth decline from falling house and share prices.

"The highly publicised rise in oil prices in recent months will be playing a key role in the feeling of doom and gloom," Mrs Purdue said.

Since the March quarter survey, oil prices have risen by around $US35 ($NZ46.80) a barrel, which has seen pump prices rise to an all time high of $2.109/litre for 91-octane.

For the average household, that translates into an extra $430 a year, just on petrol, Mrs Purdue said.

"But it's not just oil that is causing consumers pain. Food prices have continued to rise, debt servicing costs are up sharply and consumers are now facing the harsh reality of falling house prices.

"At the same time, the unexpected decline in employment in the March quarter has brought with it the realisation that the labour market may not be 100 per cent bullet-proof."

On the other side, she noted that during the quarter dairy giant Fonterra had announced a much bigger-than-expected dairy payout for the 2007/08 season and the Government announced a tax cut package worth $10.6bn over the next four years, and brought forward the indexation of Working For Families' payments.

"Together these initiatives should provide some welcome relief to cash-constrained households later this year," Mrs Purdue said.

"In the meantime, there is plenty for consumers to be down about, and they will continue to look for ways to cut back on spending."

The biggest downward influence on confidence came from a sharp deterioration in consumers' assessment of their current financial situation.

But of more importance was the hefty decline in expectations around consumers' future financial position and perceptions of their purchasing power, Mrs Purdue said.

By far the most frequent reason given was living costs rising faster than income.

A net 52 per cent of consumers expect bad economic times over the next 12 months, up 14 points from March.

Among the regions, Wellington was the least pessimistic (92.8 per cent), while the most pessimistic was Southland (72.8 per cent).

Confidence in Auckland plunged a whopping 19 points to 80.8 per cent.

Confidence among public sector workers was even lower than among those in the private sector – 77.4 per cent against 82.4 per cent.

The retail industry is likely to face lean times, Richard Miller of McDermott Miller said.

The fall in the percentage of consumers thinking now is a good time to buy a major household item is the second largest on record – down 19 points from plus 8 per cent to minus 11.

Thirty per cent of respondents said they had no money to spare, up from 26 per cent in March, and 22 per cent said all their money was needed for other purposes.

"It will take much more than shops' sales and heavy discounts to stimulate shopper spending in the near future," Mr Miller said.

- NZPA