Business confidence remains low, data reveals

Business confidence has barely changed in the past three months, remaining at low levels last recorded during the downturn that accompanied the Asian financial crisis in the late-1990s, according to data out today from the New Zealand Institute of Business Research.

The independent think tank's Quarterly Survey of Business Opinion (QSBO) found that in the June quarter a net 44 per cent of firms expected deterioration in the general business situation during the next six months. That compared with 49 per cent in the March quarter and 61 per cent in the December quarter.

On a seasonally adjusted basis, a net 40 per cent of firms expected conditions to deteriorate, compared to 41 per cent in March and the historically high 68 per cent in the December survey.

Activity in June was relatively weak with staff numbers being trimmed, except in services. Capital utilisation was steady at a historically high level of 91.3 per cent, and inflationary pressures were widespread, NZIER said.

The results also indicated firms were not pessimistic about the short-term outlook for their own businesses, despite the slowing economy.

A seasonally adjusted net 5 per cent of firms reported a decline in their own trading activity in the past three months, the third quarter in which the net balance was negative, NZIER said.

A small net balance of 2 per cent of firms expected their own trading activity to improve in the next three months, unchanged from March but an improvement from the net balance of 7 per cent which expected a decline in their own activity in the December survey.

Trading activity indicators suggested manufacturers and merchants generally fared poorly in the past three months, but the data suggested a net balance of firms in those sectors were less pessimistic about the next three months, NZIER said.

In building construction, a net balance of 5 per cent of firms reported an increase in output in the June quarter, up from 2 per cent in the March survey. But when it came to new orders the net balance of firms reporting a decline was 18 per cent, while a net balance of 42 per cent reported a drop in profitability.

In the service sector a tiny net balance of firms had increases in employment and volumes of work in the past three months, but a net 23 per cent of service sector firms reported lower profits during the period.

Investment intentions for the June survey were less negative than in March, with the net balance of firms intending to invest less in buildings in the next 12 months dropping from 18 per cent to 7 per cent. For investment in plant the fall was from 8 per cent to 2 per cent.

A net 1 per cent of firms intended to increase staff numbers in the next three months, compared with a net 8 per cent of firms that decreased staff numbers in the past three months, NZIER said.

Difficulties finding either skilled or unskilled labour had eased considerably since early 2005 and were now lower than they had been on average in the past 10 years. Difficulty finding unskilled labour was down from a net 9 per cent in March to a net 4 per cent in June, while for skilled labour it was down from a net 26 per cent in March to 25 per cent.

A net 28 per cent of firms increased selling prices in the past three months, slightly above the 25 per cent recorded in March, while the net balance of firms intending to increase selling prices was up from 26 per cent in March to 36 per cent in June.

The net balance of firms experiencing cost increases in the past three months jumped from 42 per cent in March to 53 per cent.

On a regional basis, firms in the upper North Island had a sizeable increase in the confidence measure, from minus 47 per cent to minus 38 per cent.

Also firms with activities spread throughout the country saw improvement, with a net 51 per cent expecting conditions to deteriorate in the June survey, compared to a net 58 per cent in March.

But pessimism was more widespread for firms operating in the South Island, with a net balance of 54 per cent expecting deterioration in June, compared to 50 per cent in March.

Firms in the lower North Island were steady with 40 per cent expecting deterioration.

- NZPA