KEY POINTS:
The economy is strangely poised with rising prices but a strong job market, economists said today after indications the public are less than confident about the future.
They said an apparent lack of optimism looing forward for the year could be coming on the back of petrol, food
and mortgage rate increases.
A Westpac McDermott Miller survey in December showed consumer confidence was at an 18-month low and an nzherald.co.nz poll today suggests only a quarter of people are optimistic about the economy looking forward.
Of the first 840 people to vote today, 41 per cent were pessimistic, 33 per cent neutral and 25 per cent optimistic.
Economists from the leading banks said strong counter forces are at work when it comes to how people feel.
Westpac chief economist Brendan O'Donovan said a disparity between urban and rural centres is opening up with the additional $4 billion worth of dairy cash for the year to August 2008 and an expected growth in the meat sector.
He said while the housing correction is being felt in the cities, rural property is healthy and will continue to grow this year.
"We've already seen the divergence occurring. In the past nine months, retail sales have been up around 8 per cent in the provinces and only about three per cent in the cities. And rural land values for the three months to December have been about 50 per cent more than the same period last year," Mr O'Donovan said.
He said the Reserve Bank have a tough battle against inflation ahead with carbon charges and possible regional petrol taxes having an added impact.
"It is a strange time for the economy. Any time in the past they've had a housing correction, it's taken care of the inflation problem and the economic activity has been pretty weak. But this time they have a very tight labour market and very strong wage growth and a cash flow from the rest of the world paying more for our food," Mr O'Donovan said.
ANZ chief economist Cameron Bagrie said people have got good income growth but the surging house prices have slowed the consumer spend.
"The housing market has pretty well been flat now for eight or nine months and if you talk to some of the retailers it's pretty spasmodic and patchy," Mr Bagrie said.
He said perhaps the Reserve Bank Governor's message has finally got through.
ASB chief economist Nick Tuffley said people are pessimistic as they see their outgoings increasing, with food, petrol and interest rates going up while the housing market is softening.
"That collection of things will be making people feel a bit weary when it comes to 2008," Mr Tuffley.
But those close to the dairy industry will be feeling a "bit more chipper" with the record pay-out from Fonterra.
"Whilst they are experiencing the higher petrol prices, higher food prices and higher mortgage rates, they're getting a dollop of cream, so to speak, on the top to make them feel better," Mr Tuffley said.
He said while the strong labour market is a positive, people are used to it and not everyone remembers the high unemployment and recession of the early 1990s.
