Business Outlook

September 2009

Happy Days

Business confidence has taken another strong step forward. A net 49 percent expect better times ahead — levels not seen since 1999, as the post Asian crisis recovery took hold. Confidence was up across all sectors bar construction, but this sector still remains the most optimistic with a net 63 percent expecting better times ahead.

Once again, virtually all survey indicators improved in the month. Firms’ own activity expectations nudged up a further 6 percentage points on last month. A net 32 percent expect better times ahead. The sectoral picture is somewhat mixed with retailing and manufacturing down marginally but agriculture, construction and services rising sharply. All remain firmly in positive territory giving a uniform picture of composure. Profit expectations continue to nudge higher. A net 8 percent expect an improvement over the year ahead, up 7 percentage points on last month. All except agriculture are expecting to move back into the black.

Employment intentions continue to recover — off precipitous lows. A net 2 percent expect to increase staff over the year ahead — the first positive reading in 18 months and snaps a record losing streak. Physical job shedding may be coming to an end, although employment intentions will need to gain further to avert a rising unemployment rate courtesy of new entrants into the workforce. The sectoral picture for employment is notable for the uniform cluster around zero. Clearly firms are flagging remaining in a holding pattern until they see sustained evidence of an upturn and improved profitability. The same applies for investment, with a net 2 percent expecting to increase investment over the year ahead, unchanged on last month.

Firms’ own activity expectations — a key lead indicator — is flagging 4 percent economic growth a year from now. Our composite growth indicator from the survey is gradually gaining momentum and pointing to 2½ percent economic growth in the middle of next year.

Across other survey indicators, export intentions were down, but appear surprisingly resilient in the face of the higher New Zealand dollar. Praise be an uptick in commodity prices over the preceding months, with the ANZ World Commodity Price Index up 12 percent from its February lows. Pricing intentions weakened, with a net 9 percent expecting to raise prices over the year ahead (previously +15). This is consistent with an annual inflation rate of 1 percent. Residential investment intentions gave back some of last month’s whopper gains, but with a net 39 percent expecting more investment ahead, prospects are for building consents to extend their recovering trend.

Theories will abound over the improvement in confidence and what it means for the economy. Just as night follows day, day follows night and the sun invariably rises in the morning. The deeper the slump — a hole from which people are peering up from, the bigger the prospective recovery.

There is no doubt housing and construction remain at the forefront of the improvement in confidence, although sentiment is clearly diffusing through the wider economy. Structural headwinds including an unbalanced global economy and an undesirable borrow and spend mix to growth remain locally. Yet tailwinds in the form of stabilising / recovering global demand, relatively stronger growth across the Asian region with China the regional juggernaut, and improving world commodity prices add substance to the path for the economy.

There have been three times in history when the variables within our survey have surged this far, this fast. The first was in the late 1980’s after the equity market rout. People peered up from a deep hole. The worst was apparently beyond us. Thump. It failed to become self-fulfilling and reality soon set in. The second was in the early-to-mid 1990’s. An elongated durable expansion followed as pent-up demand, an upturn in productivity, a strong global backdrop and a slow off the mark central bank supported prospects. The final was in 1998/99 following the Asian crisis. The RBNZ watched the economy firm and resource pressures intensify for more than a year. Finally they acted. Bitter medicine was delivered as 200 basis points of hikes followed. A domestic recession ensued in 2000. Time will tell which path we are on.

Survey Results

The table can be viewed as charts on our Business Outlook charts page.

If you would like to become a respondent to our survey, send an email to economics@nbnz.co.nz with your business location and industry sector. For details on the nature and performance of the Business Outlook please refer to this file:
www.nationalbank.co.nz/economics/outlook/pdf/BOBackgroundPaper.pdf.
This background paper also contains enrolment forms for new survey respondents.

This material is provided as a complimentary service of The National Bank of New Zealand, part of ANZ National Bank Limited ("Bank"). It is prepared based on information and sources the Bank believes to be reliable. Its content is for information only, is subject to change and is not a substitute for commercial judgement or professional advice, which should be sought prior to acting in reliance on it. To the extent permitted by law the Bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.