19 Sep 2016

Consumer confidence on the rise but some still wary

2:22 pm on 19 September 2016

A faster-growing economy is underpinning a pick up in consumer confidence, but economists warn there is still a lot of nervousness in New Zealand households.

Money in pocket

Photo: 123RF

The Westpac-McDermott Miller consumer confidence index rose two points to 108 in the three months to September, compared with the previous quarter.

A reading above 100 indicates more optimists than pessimists.

Sentiment was still below the average of 111.4, with rural regions and low-income households wary about the economic outlook.

"There are still areas of the economy where households are feeling more nervous," said Westpac senior economist Satish Ranchhod.

"Many rural farmers will be facing challenges from low commodity prices in recent years, which will really be putting the squeeze on their incomes.

"We're also seeing many low-income households are quite nervous about where the economy is heading over the next few years."

Middle to high-income earners felt better off, with many reporting their financial situation had improved due to the faster-growing economy.

However, households earning less than $50,000 were more ambivalent.

While their confidence edged up, a larger number reported their finances had stalled or worsened over the past year.

"Many lower income households are finding that their incomes are getting squeezed. They're not convinced that the financial benefits of a growing economy are passing through, and that is obviously affecting their confidence," Mr Ranchhod said.

Nevertheless, low interest rates meant households were much more likely to spend a cash windfall than to pay down debt.

"The gap between the proportion of households who said they'd spend a cash windfall and those who said they'd use it to pay down debt is now at its widest since we started collecting this data in 1998," Mr Ranchhod said.

The surging housing market has seen household indebtedness hit record highs, with the debt-to-income ratio now at 165 percent at the end of June, compared with 159 percent a year earlier.

Mr Ranchhod sounded a warning about households getting too deep into debt, despite low servicing costs.

"Because in the future when they have to repay it that could put quite a squeeze on their spending power."

The Westpac survey contrasted with last week's ANZ monthly consumer survey, which showed confidence was at its highest level for the year.

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