Matt Nolan

The great August/September consumer confidence rebound?

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Following the improvement in business confidence, New Zealand has now experienced a rebound in consumer confidence:

Source (Roy Morgan)

Now consumer confidence is still at low levels compared to recent history – however, it is now in net “optimistic” territory, a sure sign that consumers are becoming more willing to open their wallets.

Furthermore, the magnitude of the decline in consumer confidence over the June quarter was what first pointed to the sharp decline in household economic activity over this period. The rebound in confidence since the end of July (the early August survey) has been similarly impressive – indicating that there could well have been a sharp increase in household economic activity over the September quarter, relative to June.

However, there is one provision that we have to place on this improving outlook:

The rebound in household confidence stems from expectations – not a real improvement in the household balance sheet position – this is illustrated here:

Source (Roy Morgan)

The red line indicates the net number of respondents who believe they will be financially better off next year. The blue line represents the net number of respondents who are better off than they were a year ago.

The fall in petrol prices has lead to a small increase in people who believe that their income goes further – however, this statistic (the blue line) is still in very negative territory.

The red line has shot up. This is probably the result of:

  1. Petrol price growth reversing – so people don’t think petrol prices will keep rising,
  2. An end in sight for food price growth,
  3. INTEREST RATE CUTS!
  4. Job retention following a period where people were given the impression that layoffs were on the cards (with widely advertised meat work job losses etc).

This indicates to me that there is now a rising risk that peoples expectations could be thrown the other way – if any of these factors break down. This leaves the RBNZ wondering – if we say we are not going to cut rates very much, what will happen to consumer confidence?

Other discussions: (Rates blog)

6 replies
  1. John
    John says:

    “they” are predicting Aucklands population will increase by the size of Christchurch over the next 25 years so someone ( “they”) must be confident?.
    The big oil well is a hidden variable as the price falls it increases (in the imagination) and confidence increases.

  2. Matt Nolan
    Matt Nolan says:

    ““they” are predicting Aucklands population will increase by the size of Christchurch over the next 25 years so someone ( “they”) must be confident?.”

    Sorry I don’t understand what you are getting at?

  3. John
    John says:

    When someone in authority states that Aucklands population is going to increase by such an enormous number the rest of the population probably have a sense of that also. So apart from immediate things (oil price etc) they perhaps factor it in?

    Have you blogged about the advantages of increasing the population Matt? Is there an optimum number of people? Who benefits and are there losers?

  4. Matt Nolan
    Matt Nolan says:

    “When someone in authority states that Aucklands population is going to increase by such an enormous number the rest of the population probably have a sense of that also”

    I am sure that people do believe them – however, I am not sure that this would increase peoples one year ahead income expectations, which is where the increase in consumer confidence came from.

    “Have you blogged about the advantages of increasing the population Matt? Is there an optimum number of people? Who benefits and are there losers?”

    It is a very interesting issue – and hopefully I do get a chance to write something about it at some point.

  5. Phil
    Phil says:

    This graph looks suspiciously like it would track much closer to the Labour Party’s polling than the one Pierson put up on The Standard…

  6. Matt Nolan
    Matt Nolan says:

    Hi Phil,

    Is that the graph that is found here:

    http://www.thestandard.org.nz/?p=2964

    I think the relationship he is getting at is the one between consumer confidence and votes for the incumbent party – generally, the more confident consumers are, the better the incumbent does.

    As petrol prices also have a big impact on consumer confidence – changes in petrol prices should run around with voting share as well. However, I think the primary relationship is between consumer confidence and incumbent voting.

    Generally, I think it is because when people feel bad about the economy they want a change to fix it – and as a result, the opposition will do well as they provide the “change”.

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