Consumer confidence plunges to lowest level since 1988

The Westpac McDermott Miller Consumer Confidence Index dropped sharply in the June quarter, falling to the lowest level recorded since the survey began in 1988.

The drop of 13 points to a level of 78.7 indicates that there are far more New Zealanders who are pessimistic about the economic environment than those that are optimistic.

"Household budgets are being squeezed in a way that they haven't been for decades," said Westpac's chief economist Michael Gordon.

"The combination of rising mortgage rates and increases in living costs has already taken a large bite out of disposable incomes. And with interest rates set to rise even further, many households will find the pressure on their finances becoming more intense over the coming months.

"The pressure on household finances is weighing on spending appetites, and we're expecting a downturn in economic growth more generally over the coming months," Gordon said.

"The extent of that downturn will have an important bearing on how much further the Reserve Bank will raise the Official Cash Rate. If demand slows sharply – consistent with the drop in consumer confidence – increases in the cash rate are likely to fall short of what financial markets are expecting."

There survey showed clear contrasts across the different demographic groups, with some having experienced very large drops in confidence this June quarter.

Men were now almost as pessimistic as females, having experienced a sharp fall in confidence (down 21 points to 78.9).

In contrast, women's confidence dropped 6.2 points to sit just below men at 78.5.

"Rising prices and interest rate increases are having an impact on the financial position of both men and women, but when it comes to their own financial situation improving in a year's time, men are far more pessimistic," said Imogen Rendall, market research director of McDermott Miller Limited.

"Those aged 30-49 have been cautiously optimistic for the last three quarters, but this June quarter that optimism nose-dived 26.1 points to 77.1," Rendall said.

"Household finances of those in this age group are likely to be being put under significant strain, as prices continue to rise and mortgage rates go higher."

Confidence of younger people aged 18-29 dropped again from last quarter, falling to 86.1 (down 5.9 points).

There was a similar story with those aged 50-plus, with confidence having fallen each quarter for the last year. This age group now sat on 78.1 (down 4.8 points).