By BRIAN FALLOW
Consumer confidence has fallen over the past three months, with pessimists outnumbering optimists for the first time in two years, the latest WestpacTrust McDermott Miller survey shows.
Normally optimistic Auckland is gloomier than at any time since December 1991.
WestpacTrust chief economist Adrian Orr said the fall in confidence was
not surprising given the weak state of the economy.
"Consumers' wallets have been hit with petrol price hikes, while job uncertainty has intensified as employment growth has weakened."
Household wealth had continued to languish in line with house prices.
"Adding to these concerns are continued net emigration and the New Zealand dollar at post-float lows against the US dollar," Mr Orr said.
"Given all these factors, we take comfort in the fact that consumer confidence has held up so well."
People are more downbeat about the outlook for the economy as a whole than their own financial circumstances, however, mirroring an effect often seen in business confidence surveys.
More respondents expect to be personally better off over the coming year, but a net 35 per cent expect bad economic times over that period.
June quarter gross domestic product figures are due out on Friday and the average market expectation is for a 0.4 per cent contraction.
Mr Orr said the weakness of consumer confidence raised questions about the strength of the domestic economy going forward.
It would not be until the December quarter or the first half of next year that NZ would see any significant pickup in economic activity, he said.
"While the export sector looks to be maintaining a solid performance, the domestic sector continues to show signs of weakness, making the Reserve Bank's task all the more confusing."
The consumer confidence survey shows expectations of inflation continuing to rise.
"There are obvious inflation concerns for the Reserve Bank, which is already anticipating a breach of its 0-3 per cent inflation target by the end of the year.
"It will have to decide just how long it is prepared to accept such a breach, and balance the weak domestic economy against rising imported inflation pressures when deciding the future of interest rates."
Whether the Reserve Bank raised interest rates in December would primarily depend on the strength of domestic spending indicators, especially business investment and retail spending, Mr Orr said.
If they continued to rise the bank would resume tightening come December 6 - despite recent negative sentiment.
