25 Nov 2022

Consumer confidence slumps as economic landscape darkens

12:24 pm on 25 November 2022
Woman is going to use contactless means of payment in supermarket. Close up of female hands holding necessary cash equipment

A net 16 percent of respondents say their current financial position has worsened. Photo: 123RF

Consumer sentiment has slumped further amid rising interest rates, high inflation, falling house prices, and prospect of a slowing economy.

The ANZ-Roy Morgan consumer confidence survey shows a five point fall to 80.7, the lowest level since June.

A reading below 100 signals pessimism.

"There are significant headwinds for consumer confidence and spending: the rising cost of living, rapidly rising interest rates, and falling house prices, as well as general uncertainty about the economic outlook," ANZ chief economist Sharon Zollner said.

A net 16 percent of respondents said their current financial position had worsened, a slight improvement on the month before, and there was an even split between those expecting to be worse off in five years and those expecting to be better off, a drop from a slight positive reading last month.

However, a net 31 percent thought it was a bad time to buy a big ticket item, regarded as a barometer of consumer activity, falling nine points to its lowest level since the pandemic hit.

Zollner said the major offset had been high employment, rising wages, and perceptions of improved job security.

"Here and now, most households' cash-flow is okay, and balance sheets are relatively robust."

But she said the bite of higher mortgage payments would soon be felt by an increasing number of households depressing spending.

"Overall, while consumer spending has been remarkably resilient, we suspect that this dynamic is due to peter out fairly soon as more and more households roll onto sharply higher mortgage rates and the flow-on effects of the ongoing slowing in the housing market become harder to miss. The Reserve Bank will certainly be hoping so."

Earlier this week, the Reserve Bank called on households to save not spend to reduce inflation as it looks to create a recession next year to slow demand.

Zollner said a lift in consumers' inflation expectations would be unwelcome news for the RBNZ.

"If consumers expect inflation, it makes it easier for businesses to pass on cost increases, all else equal."

"The RBNZ upped the freak-out factor considerably this week with their forecasts of much higher interest rates, much lower growth, and unemployment reaching 5.7 percent. The reverberations of that seem likely to show up in the data relatively quickly. Watch this space."

Meanwhile, latest retail numbers from Stats NZ showed a meagre 0.4 percent rise in the volume of retail sales, which excludes price movements, in the three months ended September.

Department store and hospitality related sales were higher but there was a sharp fall in electrical and electronic sales.

Overall sales were up 4.9 percent on the same quarter a year ago, when sales were partially affected by Covid lockdowns.

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