NZ: Consumer optimism has continued its ascent - ANZ

Cameron Bagrie, Chief Economist at ANZ, notes that the NZ’s ANZ-Roy Morgan Consumer Confidence Index rose from 122.9 to 127.2, taking confidence to the highest level since April 2015.

Key Quotes

“The gain in seasonally adjusted terms was more modest (from 126 to 129), but was still its sixth consecutive increase. Consumers are no longer in cruise control; it’s pedal to the metal.

• There is plenty of torque in the details. The Current Conditions and Future Conditions Indexes rose 4 points each, to 127.3 and 127.2 respectively.
• Indicators for concurrent spending increased their RPMs. A net 13% feel better off compared with a year ago, which is the highest since June 2014. Consumer enthusiasm towards buying major household items also surged 7 points to a net 42%.
• Forward-looking indicators also revved their engines. Net optimism towards the economy in 1 and 5 years’ time rose to a net 23% and 28% respectively, taking both back to levels seen in early 2015. Respondents’ views towards their own financial situation in 12 months’ time held at a respectable net 31%.”

“Strong levels of confidence reflect an economy that is performing well. The labour market is strengthening, cost of living changes remain historically low (every dollar earned goes further), dairying is no longer facing the risks it was, and earlier house price gains have given home owners a decent wealth boost. Our confidence composite gauge (which combines business and consumer sentiment) is pointing to GDP growth accelerating to north of 4%. We don’t actually think that is attainable, but is a strong directional signal nonetheless.”

“However, some dashboard warning lights are now beginning to flash. The majority of responses to this month’s survey were received prior to recent central New Zealand earthquakes. As was the case after the 2010/11 quakes, some hit to confidence is possible.”

“The economy has some key safety features to steer it through smoothly. Strong momentum and elevated levels of confidence are important as they give the economy far more resilience to deal with negative shocks. Moreover, while there are certainly pressure points (Auckland housing, household debt levels), the economy doesn’t have the same widespread vulnerabilities and imbalances that have often tipped it over in the past when negative shocks have hit.”

“Inflation expectations lifted from 3.1% to 3.3%. This measure is volatile, but the result is in line with the average seen over the prior 12 months.”