Businesses are feeling more optimistic about the months ahead, but current conditions remain tough for many industries. Cost pressures eased off a little compared to last quarter.
Key results (seasonally adjusted)
- General business situation: +40 (Prev: +14)
- Trading activity, past three months: -1 (Prev: +1)
- Trading activity, next three months: +15 (Prev: +11)
- Average selling prices, past three months: +27 (Prev: +37)
- Average selling prices, next three months: +45 (Prev: +51)
The NZIER’s quarterly survey of business opinion showed a strong lift in general confidence in September, despite resurgent fuel prices and the uncertainty around the looming election. Firms were more confident about their prospects for the next few months, even though their recent performance remained rough in many industries.
The survey was held over a relatively compressed period (9 to 28 September), with around 40% of responses coming back on the first day. Later responses were less confident, as the resurgence in world oil prices was finally reflected in prices at the pump over the course of the month.
General business sentiment rose to a net 40% positive compared to a net 14% in June, returning to around the levels seen in the December quarter last year (before the Middle East conflict). However, the own-activity measures, which tend to have a closer correspondence with GDP growth, were more subdued. Trading activity over the last three months was slightly weaker than in June, while expectations for the quarter ahead saw a more modest four-point increase to +15%.
Other forward-looking measures were also up for the quarter. Hiring intentions rose strongly to a net 23% positive (although past employment was down). Notably, firms continue to report that workers are becoming harder to find, despite the ongoing rise in unemployment over the last couple of years. That said, the proportion of firms citing labour as a factor limiting output declined this quarter. Investment intentions picked up, more so for plant and machinery than for buildings.
The results were mixed across industries. Manufacturing and services were more upbeat for the months ahead but reported substantially weaker performance over the last quarter. In contrast, builders and merchants reported both stronger past results and greater optimism about the near-term outlook.
The pricing measures in the survey were down compared to June – not entirely surprising as fuel prices were lower on average through the September quarter compared to the June quarter. The notable exception was merchants, who expected both higher costs and prices for the quarter ahead.
The implications for the RBNZ ahead of its 28 October policy review are unclear – there is certainly no smoking gun in this report that would demand that the RBNZ abandon the “pause” strategy communicated at the September MPS. Optimism among businesses remains high despite the obvious headwinds, but there is still a wide gap between hopes and reality. The pricing measures have eased compared to last quarter, but that may simply confirm the RBNZ’s expectation that annual inflation will drop from the 4.1% recorded last quarter as fuel prices eased. The September quarter CPI, released on 22 October, may be more informative in that respect.
