NZ consumer confidence gains in fourth quarter as rising dairy prices lift mood in rural communities

New Zealand consumer confidence posted its biggest lift in four years as rural communities were more upbeat after gains in dairy prices.

New Zealand consumer confidence posted its biggest lift in four years in the December quarter as rural communities were more upbeat after gains in dairy prices although households remain cautious.

The Westpac McDermott Miller consumer confidence index rose 5.2 points to 113.1 in the December quarter, above the long-run average of 111.4. A reading above 100 indicates optimists outnumber pessimists. The present conditions index rose 2.2 points to 111.4, while the expected conditions index gained 7.2 points to 114.3.

A net 18 per cent of the 1,554 people surveyed from December 1 - 10 expect the economic outlook to improve over the coming year, compared to a net 1.8 per cent seeing an improvement in the September quarter, while a net 17.2 per cent see better times over a five-year horizon, up from 15 per cent three months earlier. The survey has a margin of error of 2.5 per cent.

"Gains in confidence have been widespread," said Westpac Banking Corp acting Chief Economist Michael Gordon. "Notably there's been a marked lift in confidence among rural households. This follows strong increases in global dairy prices in recent months."

The dairy industry forms the backbone of the New Zealand economy, accounting for around a quarter of exports. New Zealand farmers had been hard hit by a plunge in global dairy prices, hurt by China's economic slowdown and global oversupply. Since July the price of whole milk powder - New Zealand's key commodity export - has soared almost 75 per cent. Last month, Fonterra Cooperative Group hiked its forecast payout to its 10,500 farmer shareholders to $6 per kilo of milk solids for the current season, versus $3.90 in the prior season.

Gordon noted there has also been an increase in confidence among households on lower incomes, as the labour market strengthens on the back of solid economic activity.

Data this week is expected to show New Zealand's economy to have extended a steady growth rate for the fifth straight quarter. Economists are tipping third quarter growth of 0.9 per cent, supported by low interest rates, a large pipeline of construction work, rapid population growth and strong tourism.

However, while households are feeling more upbeat, they remain cautious. "They are still keeping an eye on their purse strings," said Gordon.

The number of households who think it's a good time to buy a major item was only 0.3 points higher than in the third quarter and remained below average levels.

"New Zealand consumers may feel more optimistic now, but this does not necessarily mean they be spending large this Christmas," said Richard Miller, Managing Director of McDermott Miller.