KEY POINTS:
Consumer confidence has sagged as nervousness about the onset of a global recession outweighs the boost from lower petrol prices, falling interest rates and tax cuts.
The Westpac McDermott Miller consumer confidence index fell to 101.3 in the December quarter from 104.8 in the September quarter. Any number
above 100 indicates more optimists than pessimists, but the difference is within the margin of error for the survey.
Consumer confidence had plunged in the first half of the year as the soaring cost of living, falling house prices and drought drove consumers into a state of depression, Westpac economist Donna Purdue said.
Confidence rebounded in the September quarter, ahead of tax cuts on October 1 as petrol prices and interest rates started to fall.
Since then, however, turmoil in global financial markets had spilled over into the real economy to the extent that there was now a strong prospect of a deep global recession next year, she said.
"Arguably, dairy farmers have felt the ill winds of the global downturn earlier than many other consumers, with Fonterra revising down its forecast for the payout this season from $7 a kilogram of milksolids to $6. This will see farmers' incomes take a substantial hit over the coming year, relative to last year."
It was notable that the fall in confidence was largely focused in the dairy-intensive regions of Canterbury and Waikato and was almost entirely among males, Purdue said.
"Wellington was the other region to suffer a sizeable loss in confidence, perhaps reflecting concerns that the new Government would be cutting public sector jobs."
While consumer confidence was higher than in the first half of the year, it was still almost 9 points lower than a year ago, implying a tough Christmas for retailers, she said.
Credit card data from the Reserve Bank tell the same story. Billings in November were lower than a year earlier, something which has happened only once before in the past 26 years. The consumer confidence index reflects responses to five questions.
The one which contributed most to the fall was about the outlook for the economy over the coming year. A net 45 per cent of respondents expect it to get worse, well down from September's 17 per cent and close to the 10-year low recorded in June.
But people are optimistic about the economy's prospects five years out, with a net 52 per cent expecting an improvement.
"This may just be a reflection of the starting point," Purdue said. "After all we are sitting in recession so one would hope the outlook would be better."
Consumers are less optimistic about their own future financial situation with just a net 10 per cent expecting to be better off in a year's time, down from 16 per cent in September.
"Since September the employment outlook has deteriorated significantly and with an increasing number of high-profile redundancies job security and wage expectations are likely to have [worsened]," she said.
"Regarding their current financial circumstances, most still say they are worse off than last year, but nowhere near to the same degree as earlier in the year."
And a net 11 per cent say now is a good time to buy a major household item, down from 14 per cent in September.
"Much tighter access to credit and a rising wariness of taking on debt could held explain the fall this quarter, along with the sharp fall in the exchange rate, which makes imported goods more expensive."
CASE OF NERVES
* Consumer confidence is weaker than in the September quarter and well down on this time last year.
* Nervousness about the global recession and its impact on jobs has offset the boost from lower petrol prices, interest rates and tax cuts.
* The fall in confidence is most marked in Canterbury and Waikato, which are sensitive to the outlook for dairying.