Consumer confidence took a sharp turn for the worse in the last three months, he said.
Households had clearly become a lot more concerned about the economic outlook, no doubt in part to the clouds gathering over the global economy.
"It will be particularly concerning for retailers to see that households have become much more cautious about spending on big-ticket items."
Mr Stephens was commenting on the Westpac McDermott Miller consumer confidence December quarter index, which showed confidence fell across the board.
Such a pronounced drop in confidence signalled a retrenchment in consumer spending in the months ahead, especially as consumption was already likely to take a post-Rugby World Cup breather, he said.
"This is an additional reason for the Reserve Bank to leave interest rates low for a while yet."
The survey was conducted from December 1 to December 11, with a sample size of 1567.
The main contributors to the fall in confidence were in the economic outlook of households and in their attitude to whether or not it was a good time to buy a major household item.
On balance, 22% of respondents now expected bad times for the New Zealand economy during the year ahead, up from 2% in September.
About 31% remained optimistic about the economy for the next five years but that was down from 41% in September and the lowest level since mid-2008.
The number of respondents saying that now was a good time to spend on big-ticket items had fallen from 30% to just 13%.
Mr Stephens said that was the lowest the series had been since just after the Christchurch earthquake in February and before that, in March 2009.
Households' assessments of their personal financial situation was little changed, he said.
Twenty percent were downbeat about their current situation, compared to 19% in September. A net 5% continued to think their personal financial situation would get better over the coming year, down from 10% in the previous survey.
An analysis of the results showed that pessimism and optimism closely followed income divisions.
The index for consumers with household incomes less than $50,000 fell 17.5% to a pessimistic 89.8%. In contrast, confidence of those with household incomes above $50,000 remained at 107.1.
While still high, it was down nearly 14 points from September.
McDermott Miller strategic planning managing director Richard Miller said the contrast between rural and urban consumers was even more marked.
"Rural confidence now stands at 96.2, down a whopping 18.1 points over the quarter while metropolitan and secondary centres fell only around 7 points and remained optimistic with ratings of 103.2 and 102.9 respectively."
Probing questions revealed the three main reasons for rural consumers expecting bad times for New Zealand during the coming year were adverse international economic conditions and poor economic prospects; the continuing recess; and wrong economic government policies, Mr Miller said.
"Consumer confidence in New Zealand is fragile. If the concerns revealed by rural consumers spread to consumers in the cities and towns, New Zealand consumer confidence could well fall into pessimistic territory in the coming year," he said.
