Business confidence up sharply in latest survey

Business confidence remained negative but improved sharply in the September quarter, the New Zealand Institute of Economic Research (NZIER) said today in its quarterly survey of business opinion (QSBO).

The independent think tank said a net 19 per cent of firms in the survey expected a deterioration in the general business situation in the next six months, the most positive figure for 18 months.

"This is sharply lower than the net 44 per cent expecting deterioration in June and well down on the net 61 per cent figure recorded last December," NZIER said.

On a seasonally-adjusted basis, a net 26 per cent of firms were expecting deterioration in the September quarter, down from 40 per cent in the two previous quarters, and 68 per cent in December.

The increase in the general business confidence statistic was reflected in all regions and business sectors for which separate data were analysed, NZIER said.

Seasonally adjusted, the number of firms reporting an increase in their own activities in the past three months was the same as the number reporting a decrease. Last quarter a net balance of 5 per cent of firms reported lower activity, seasonally adjusted.

Capacity utilisation had increased for the first time since December 2004, from 91.4 per cent in the June quarter survey, to 92.3 per cent in the September quarter, only just below the December 2004 all-time high of 92.6 per cent.

"This statistic will be of some concern to the Reserve Bank," NZIER said.

A net 5 per cent of manufacturing firms reported a decline in output in the previous three months, compared to 17 per cent in June. A net 6 per cent of manufacturers reported an increase in exports, compared to a net 26 per cent reporting a decline in the June quarter, and a net 3 per cent reported an increase in new orders compared to a net 17 per cent reporting a decline.

"The reduction in the value of the New Zealand dollar in the first half of 2006 has obviously fed through into orders for the manufacturing sector.

"At the same time, the slowing of domestic demand resulting from the tight monetary policy and higher fuel prices squeezing consumption spending on other items has also had an effect on the sector," NZIER said.

In building construction, a net balance of 7 per cent of firms had reported an increase in output in the September quarter, up from 5 per cent in the June survey. A net balance of 9 per cent of firms reported an increase of new orders, a significant jump from 18 per cent reporting a decline in the June survey.

But the number of building firms reporting a lift in the level of overdue debtors was also up, with 24 per cent reporting an increase in overdue debtors, compared to 3 per cent reporting a decrease in overdue debtors in June.

"Architects' views about the level of work available in their own area have become generally more optimistic since the June survey, and especially so for government and local authority work and for the period 12 months to 24 months from today," NZIER said.

Among merchants, a net 1 per cent reported a decline in local sales in the previous three months, compared with 15 per cent in June.

Looking at employment issues, NZIER said a net 6 per cent of firms intended to increase staff in the next three months, while the difficulty finding skilled labour had eased considerably since early 2005, down from 25 per cent in the June survey to 21 per cent this time.

Firms reporting the availability of labour as the single factor most limiting their ability to increase output had fallen from 26 per cent in the March survey to 14 per cent in September.

A net 32 per cent of firms increased selling prices in the past three months, slightly above the net 28 per cent recorded in the June survey, NZIER said.

The net balance of firms that had experienced cost increases in the past three months jumped from 42 per cent in the March survey to 53 per cent in June and 54 per cent in September.

"These price and cost-related data will give the Reserve Bank some comfort that inflationary expectations and the outlook are not continuing to deteriorate. The recent strengthening of the dollar and easing of fuel prices have clearly shaped these changes in expectations."

A net balance of 27 per cent of firms reported a decline in profitability in the past three months, and a net balance of 9 per cent expected a decline in the next three months.

- NZPA