Consumer confidence has recovered most of the drop from Covid-19

Tuesday, 22 June 2021

Econ Talks - Yo-yoing Alert Level restrictions hurt businesses (2 March 2021)

Consumer confidence is improving and has recovered most of the drop from last year’s Covid-19 lockdown, according to the latest survey.

The Westpac McDermott Miller consumer confidence index edged up 1.9 points to 107.1 in the June quarter, just under its long run average of 110.7. Scores above 100 indicate that more people are optimistic rather than pessimistic about the economy in the coming year.

“Although consumer confidence is still a little below average levels, it has now recovered most of the fall that we saw in the wake of last year’s lockdown,” said Westpac’s acting chief economist Michael Gordon.

“The economy is showing some solid momentum and households are feeling increasingly secure about their own financial position.”

* Confidence rises in the job market but young still affected

* Employment confidence faltering: Westpac

Households have been spending more locally, helping offset the drag from the loss of international tourist dollars.

With most international travel still on hold and confidence in the economic outlook increasing, households were dialling up their spending on entertainment activities closer to home, which was helping to offset the drag from the loss of international tourist dollars, Gordon said.

Increasing numbers of households reported that their financial position had improved over the past year, which was to be expected given the country was emerging from several weeks in lockdown this time last year, the report said.

At this time last year, the index fell 7 points to 97.2, which was the lowest level since 2009.

Westpac said the latest reading was not just a post-Covid bounce.

“New Zealand’s economic recovery has been gaining traction in recent months, with a firming in activity seen across regions and sectors,” the report said.

“Importantly, that includes the household sector, with a strengthening in the labour market, strong increases in retail spending, and continued gains in house prices,” the report said. “Households are also feeling more optimistic about the outlook for the economy over the coming year, and they expect that their own financial situation will continue to improve.”

That lift in sentiment may have been reinforced by the Government’s recent announcement that benefit levels would increase over coming months, the report noted.

As confidence improved there had been a sizeable lift in household spending on dining out and other entertainment activities, the report said.

“That’s been seen across income and age groups, and in part reflects that instead of taking overseas holidays, many families have been spending up closer to home,” the report said. “That’s helping to offset the drag on demand in the hospitality sector from the continued loss of international tourist dollars.”

Still, the number of households which think it is a good time to make a major purchase continued to languish at very low levels, the report noted. That may reflect concerns about the availability of goods given disruptions to global supply chains.

While overall economic confidence was on the rise, there were big differences across age groups.

Confidence among those aged over 30 was back around average levels, but those aged 18 to 29 were still very downbeat about the economic landscape, the report noted.

“Compared to other age groups, a larger number of young New Zealanders told us that their financial position has deteriorated over the past year,” the report said. “Younger New Zealanders are also more concerned about the economy’s longer term trajectory.”

Restrictions on overseas travel, which prevented younger people from moving overseas for the traditional OE experience may be a factor in the lower confidence levels, as well the high house prices, the report said.

Rapid house price increases could be one reason why confidence had bounced back faster for older people in recent months, given they were more likely to be homeowners, the report said.

Consumer confidence was highest in Wellington at 113.1 and lowest in Taranaki/Manawatu-Whanganui at 98.3.