KEY POINTS:
Interest rate rises and a global credit crunch have done little to erode business confidence.
Indicators in the Institute of Economic Research's quarterly survey of business opinion point both to resilience in economic activity and stubbornly persistent inflation pressures, economists say.
ANZ National Bank chief economist Cameron Bagrie said he saw nothing in the survey to panic the Reserve Bank, but nothing to give it much comfort either.
"Four successive [official cash rate] hikes have only marginally dented growth prospects - a sign of resilience for the economy but also likely to be of some disappointment to the Reserve Bank," he said.
Institute director Brent Layton said further tightening by the Reserve Bank was more likely than not - but not a certainty.
Even if there is no further tightening, the money markets see only a 50:50 chance of a rate cut by this time next year, according to Credit Suisse's swaps-based indicator.
The survey found a net 27 per cent of firms expecting the general business situation to get worse over the next six months, compared with a net 37 per cent in the June survey. But when the results are seasonally adjusted there was little change from a net 29 per cent pessimistic in June to a net 30 per cent in September.
As usual, firms are more upbeat about their own prospects than about the general business climate. A net 12 per cent (seasonally adjusted) expect their own trading activity to lift over the next three months, down only marginally on a net 13 per cent three months earlier. That and other indicators in the survey pointed to economic growth in the 2 to 3 per cent range over the coming year, economists said.
Investment intentions are unchanged - in positive territory but below their long-run average. Hiring intentions are also steady but above their long-run average. The survey's inflation gauges remain menacing. A net 33 per cent of firms raised their prices in the past three months, up from a net 25 per cent in the June survey. And a net 34 per cent intend to raise their prices, almost unchanged from June's 35 per cent. But even more - a net 46 per cent, unchanged since June - reported higher costs and a net 44 per cent expect their costs to rise over the next three months.
A net 19 per cent reported a fall in profitability, compared with 21 per cent in the previous survey, and the decline was evident across all sectors and regions, the institute said.
The survey offers scant evidence of any relief from a tight labour market. The net balance of firms saying it had become harder to find skilled labour and the number citing labour as the main factor limiting their ability to increase output were almost unchanged from the previous survey and high by historical standards.
Manufacturers reported a decline in output - by a net 6 per cent unchanged from the previous survey - but expect a rebound over the next three months. A net 2 per cent reported a fall in the number of people they employ, but that compares with a net 26 per cent reporting a contracting workforce in the June survey. Among service sector firms, by contrast, a net 16 per cent increased staff numbers, following a net 19 per cent reporting a rise in June.
But the institute said the impact of rising rates and higher fuel prices on consumption and the service sector was starting to show. While a net 9 per cent reported an increase in activity (in volume), that was down from a net 32 per cent in the June quarter.
What They Think
* Firms' views of their own outlook and of the general business climate are little changed compared with the June quarter survey.
* But they report rising costs, falling profits, a scarcity of labour and an increasing inclination to raise their prices.
* Responses to the latest survey came in after the Reserve Bank left interest rates on hold, but before most of the dollar's latest kick higher.
