Staff in demand as job market gets fired up

Business leaders' brooding pessimism over the prospects for the New Zealand and global economies is not sufficient to dent their determination to hire new workers.

Almost 65 per cent of respondents to the New Zealand Herald's Mood of the Boardroom survey said they planned to take on more staff in the coming year. Only 18 per cent of respondents expected to hire less, while another 17 per cent were unsure.

To be sure, many of the business leaders said the tight labour market had left them with vacancies. Unemployment now stands at around 3.7 per cent - close to a 20-year low- and demand for new workers is outstripping supply.

In the three months to June the economy created 11,000 new jobs. This compares with growth in the labour force of around 5000.

"While we all welcome such low levels of unemployment in a social sense it has got to the point where it is a major constraint," said the chairman of one of New Zealand's major companies.

Nevertheless, most leaders surveyed do not dispute Treasury forecasts for the economy to grow - albeit at the somewhat slower clip of around 2 per cent compared to the 4.2 per cent of the previous year.

In such an environment demand for staff will remain strong. ASB managing director Hugh Burrett said: "We are growing the business. If you still have GDP growing at 2 per cent some businesses are going to want more people."

This sort of optimism is also apparent in business leaders' spending plans. Around 44 per cent of respondents said they would authorise more capital expenditure in the coming year. A slight majority (51 per cent) said they would authorise less, while five per cent said they were unsure.

Spending intentions on information technology were relatively evenly split - 48 per cent said they would spend less and 42 per cent said they would spend more. Ten per cent were unsure.

Bill Gallagher, chief executive of the Hamilton-based electric fence group Gallagher, reckons the figures suggest caution. "We would be authorising more capex but it's more replacement capex."

Peter Thompson, director of real estate agent Barfoot & Thompson, is also nervous about the economic outlook.

"We are being cautious from where we were two years ago at the height of the property boom."

For example, Barfoot & Thompson was more often leasing new offices and waiting to see whether they delivered, rather than buying new properties.

Almost three-quarters of those surveyed said they were more pessimistic about their prospects than they were this time last year. Only 15 per cent said they were more optimistic and 13 per cent were unsure.

Generally, they feel better about the global economy - more than a quarter of respondents said they were more optimistic than they were this time last year. Still, two-thirds of respondents said they were more pessimistic. Only nine per cent said they were unsure.

Much of the pessimism is founded on the muted outlook for the economy. The kiwi dollar, still near post-float highs against the greenback, fears of rising energy costs as oil rises above US$70 a barrel, high interest rates and falling immigration are expected to drag on business results.

"There is the recognition New Zealand has had a good run and we are beginning to understand that the country can not sustain that level of growth," said one business leader. "There is a fall-off in the housing market and we are facing increased interest rates."

The respondent also highlighted the slowing activity on the New Zealand exchange. Over the last six months the NZX has lost eight companies with a combined market value of almost $5 billion.

Trading activity was strong in the first three months of the year, but has declined every month in the second half. Business would struggle to prosper if capital markets were not strong

Meanwhile, most business leaders are gloomy about the prospects of the Labour Party leading the next government. Recent polling still suggests a Labour-Green coalition, even though National has drawn ahead in some polls..

One senior primary industry executive said: "The current Government does not understand the effects of incentivising the population for productivity. In short it is now engineering the cake smaller and is trying to give non-producers bigger pieces than the producers. It is a communistic in approach and likely to kill all incentive to produce. The message is: just breed!"

This was one of a number or references to packages such as the Working For Families scheme, which allows households earning more than $100,000 to claim income support. The package will also impose tax rates of almost 60 per cent on swathes of the population.

Another leader said the Government had until recently handled the nation's purse strings prudently. However, it had blown any political capital earned in the past three years in the lead-up to the election.

In May, Finance Minister Michael Cullen had declared the cupboard bare, then as the campaign kicked off he promised an extra $1 billion in new spending.

"If Labour go into a third term they will be looking to deliver on social policies that have been their desire but on which they have been unable to deliver on so far.

"It is open slather on spending - dental clinics, private healthcare. There has been a most unseemly throwing of money at any segment of society."

Bill Gallagher also objects to government's industrial development policies.

"We are seeing industrial welfare. My guys have got their hands out as well, but that doesn't make it right. It is poor quality spending. We would be much better with a lower tax rate."