Optimism seeps back - survey

By BRIAN FALLOW

Business confidence has rebounded, according to the latest quarterly survey by the New Zealand Institute of Economic Research, although pessimists continue to outnumber optimists.

The survey results continue the pattern of the past year, however, with a contrast between firms reporting relatively buoyant activity on their own part but concern about the general economic climate.

Of the survey's 639 respondents, 29 per cent expect the general business situation to worsen during the next six months, 19 per cent expect it to improve and 52 per cent expect it to remain the same. With a net 10 per cent pessimistic it is a sharp improvement on the net 44 per cent pessimistic in the last survey, taken days after the September 11 terrorist attacks in the United States.

The institute said that adjusted for seasonal variation, the overall confidence level had barely improved, from a net 28 per cent negative in September to a net 26 per cent now.

But Bank of New Zealand economist Stephen Toplis takes the seasonally adjusted figures with a pinch of salt, as large fluctuations in the quarterly track over the past two years may have distorted the seasonal pattern.

"In our opinion the current level of confidence is consistent with an economy that is growing modestly though unspectacularly," he said.

Domestic trading activity was stronger in December than in September and further gains are expected this quarter.

But institute economist Doug Steel said the survey results put up a warning flag that the flat patch in the economy this year might last a bit longer than people thought, perhaps into the third quarter.

"Firms are in a holding pattern. Although their own activity is increasing they are cautious about expanding capacity, given their expectations about business conditions."

As many firms reported a decrease in staff numbers during the past three months as an increase and the same outcome is expected for the next three months.

Plant and Machinery investment intentions are also flat, despite capacity usage levels which remain at historically high levels.

Mr Steel noted however that investment intentions among manufacturers and builders had improved, offset by weakness among merchants.

"So if you believe manufacturers and builders are more likely to invest heavily, it may not be as weak as the aggregate number suggests."

The BNZ also believes the survey as a whole is consistent with a rise in capital expenditure.

"A net zero participants believed they would increase investment in plant, but with capacity utilisation remaining relatively high, profitability on the up, output expected to increase and low real interest rates, we see a steady pick-up in investment across the year."

Firms continue to report difficulty in finding skilled labour, but less so than in recent quarters. That suggested employment growth was easing at the same time that net inward migration was boosting the labour force, which would ease recent upward pressure on wages, the institute said.

There was some easing in the proportion of firms reporting increased costs and rises in their own prices, compared with September, though both remain widespread. Profitability improved.

The rise in overall confidence was across all sectors but sharpest among manufacturers.

A net 23 per cent of manufacturers reported increased output in the December quarter and a net 16 per cent expect further increase during the next three months.

But the composition is expected to shift from predominantly local work last quarter to mainly export orders this quarter.

There is a risk that activity will be weaker in the short term if those export expectations are not met, Mr Steel said.

Most pessimistic was the services sector, which includes tourist firms hit by a drop in visitor arrivals.