Post RSS Feed 
Podcast Feed
Business confidence stronger as builders most confident in 10 years (Update 1)
June 30th, 2009The National Bank Business Outlook survey of business confidence has found a net 6% of respondents in June expected general business conditions to improve over the next 12 months, up 4 percentage points on May. (Updated to include more detail, link to full report, reaction from BNZ, link to all our confidence charts)
“Leading the charge is the construction industry with a net 46 percent expecting better times ahead, the highest reading since 1999. Conversely, sentiment within the agriculture sector slipped and it’s hard to go past the reality check that a dairy payout forecast of NZ$4.55 / kg milk solids will be having,” National Bank said.
Firms’ own activity expectations continued to nudge higher as well. A net 8 percent expected better times ahead.
“These movements are welcome. The firms’ own activity expectations reading, by itself, is now pointing to positive growth. But, like last month, the dog still has fleas. Profit, employment and investment intentions remain very weak, barely budging on the month prior. A net 24 percent of firms expect lower profits.”
Profit expectations was up in retailing and manufacturing, but down in agriculture, construction and the service industries. Employment intentions fell marginally. The labour market outlook remains particularly poor with a net 17 percent expecting to hire fewer staff in the year ahead, down 1 percentage point on May.
A net 6 percent of firms expect to be investing less, again down marginally from the previous month.
“Recovery will not become self-fulfilling until investment and hiring pick up. These are naturally lagged responses, but critical nonetheless.”
National Bank said the export intentions index was low with a net 11% expecting improvement. A net 9% expected to raise prices over the year ahead, down 3 percentage points from May.
“There is simply no pricing power left in the economy and we may well see inflation fall below the bottom of the 1 to 3%,” National Bank said.
A net 17% expected credit to be more difficult to get over the coming year, the survey found in a question asked for the first time. There were no comparatives, but similar US surveys showed credit being restrictive with a net minus 40-60% response to a similar question.
“On the face of it the results may suggest that local grumblings in relation to credit are largely one of price as opposed to availability, and the issue of price is being dominated by aggressive competition for cash and rising deposit rates,” National Bank said.
It said the survey had not changed its core expectation that the RBNZ would keep the Official Cash Rate on hold 2.5% for an extended period.
“The currency remains a key leg of frustration, and missing ingredient if the economy is to rebalance and recover.”
BNZ said in a research note the National Bank survey reinforced its doubts about the robustness of the recovery, referring to poor profit expectations.
The indicator that still bugs us is profitability. It’s expected to keep falling, when we might have expected things to be closer to stabilising on this front by now. Yes, we know profits, like employment, lag the cycle. But these are profit expectations we’re talking about – the same indicators that were swiftly positive at the beginnings of the recoveries from New Zealand’s prior downturns.
At the moment, they are country miles off that track. Incidentally, this trouble in profit land is underscored by corporate tax. It’s running about 40% below year-ago levels. That’s as big a collapse as we’ve seen in decades. It highlights where the worst of the pain is concentrated.
It’s been little surprise, then, to see today’s survey telling of business plans to cut staff further, and to pare back on investment.
Your views and insights?
We welcome comments and any further insights on this article and its source documents in the comments field below. Or if you want to remain under the radar please email bernard.hickey@interest.co.nz and we’ll be in touch.
We practice a form of collaborative journalism that aims to include the insights and expertise of our readers to improve our articles. That includes clearly identifying any errors and correcting them. We also update articles with relevant new information and commentary and will label our articles Update 2 etc.
We know we don’t know everything and we know we’re not always right. We appreciate your help in constantly improving and deepening the knowledge and debate on interest.co.nz.
Tags: Business Confidence, National Bank Business Outlook Survey, OCR, RBNZ
You may also like to read:
Loading ...
June 30th, 2009 at 12:20 pm
Builders may be expecting the gov to open the immigration spigot as alluded to in The Landlord Says blog prior to last election, however as this treasury paper says:
“Overall, it is equivocal whether there is enough robust evidence to support the claim that
immigration is always positive for per capita growth. This paper concurs with the
observations of the OECD, which stated “there is not sufficient or detailed enough data on
the behaviour of the New Zealand economy to give clear answers on the overall effects on per capita incomes of existing residents”. While the evidence suggests small positive net gains from migration, these do not necessarily stack up as an improvement in per capita growth rates. Whether immigration is positive is also dependent on which particular group of people governments are concerned about increasing the welfare of [first home buyers, existing residents or developers, investors, immigration agents etc]. If it is overall national welfare then the evidence does suggest immigration is positive. But if this is achieved through a lowering of the wages of native workers, albeit while potentially increasing returns to the owners of capital, this distribution of benefit may not be seen as desirable.”
http://www.treasury.govt.nz/publications/research-policy/wp/2006/06-02
and if there isn’t a positive effect on per capita gdp then perhaps there are positive benefits for some and negative for others (traffic, need for more roads increased house prices ect)
June 30th, 2009 at 12:53 pm
A pick up in construction will signal the true “green shoots”. It feeds a lot of mouths and is made up largely of self employed contractors- they are pragmatists who dont tend to go on the dole or whinge when their work dries up, so dont show in the official stats. They just dont spend any money.
I’m in the industry- the bigger Q.S. firms will tell you there are a hell of a lot of previously consented commercial projects waiting to be initiated soon, and there is a lot of pent up demand from the last two years in the residential sector that is finally starting to move. Immigration is part of it, but the rest is domestic generated.
Developers have to time construction starts for occupation and pay off in 2-3 years in an up cycle- and thoughts are that start time is very close.
June 30th, 2009 at 1:05 pm
jh
good comments on immigration and nice to see the treasury are not blind to the possible negative effect from immigration, particularly the fact that it may disbenefit many in society. My prescription for immigration is quite simple. Immigration should be in response to economic growth – ie if we cant provide skilled/unskilled labour from existing pool then immigrants should plug the gap. Immigration should NEVER be used to drive growth as that inevitably benefits some (developers, existing home owners, banks, employers via lower wages) over others (first home owners, those who find a certain lifestyle is now no longer affordable because of more demand from weatlhier migrants, employees who compete with new migrants).
(PS – I still think we owe some ethical duties beyond what simply benefits NZ, but I think this is covered by refugee quotas etc which opens NZ up to those who really need it, as opposed to wealthy UK retirees looking for somewhere cheap to exist on their UK pension).
June 30th, 2009 at 1:08 pm
jh, the Beehive will be looking to pork the numbers come 2011. Working with Treasury and the RBNZ and the poodle media, they will sell the flood of migrants as a boost to the economy. Any negative impact will then be sorted in the approach to the 2014 election. Probably with another round of immigration. When you put all the cards on the table, it becomes obvious Key will not opt for structural reform because it would cost votes. There will be a mountain of humbug and obfuscation from all directions to hide the truth and sell the rort. The current debates and committees will become so entangled in their own web of complexity and deliberate delay, that the public will tire of interest and soak up the new wave of immigration as the best thing since the last bubble.
June 30th, 2009 at 1:29 pm
Grant says:
“I’m in the industry- the bigger Q.S. firms will tell you there are a hell of a lot of previously consented commercial projects waiting to be initiated soon, and there is a lot of pent up demand from the last two years in the residential sector that is finally starting to move. Immigration is part of it, but the rest is domestic generated.
Developers have to time construction starts for occupation and pay off in 2-3 years in an up cycle- and thoughts are that start time is very close.”
I’m also in the industry and as much as I would like to agree with you (because I would benefit financially), I can’t.
My dealings with developers suggests that a large proportion of them are not able to finance projects, and there are no signs of relief on the horizon. In terms opf commercial projects, there is a lot of surplus commercial space already on the market.
My view is that things WILL pick up, but that we will never get close to a return to the “glory days” of 2002-2007. Simply the availabillity and cost of credit to developers is unlilkely to revert to what we had previously.
June 30th, 2009 at 2:57 pm
@Matt in Auck: My limited observation is on your side. Associates of mine who are small scale developers/housebuilders ( they only built 19 houses 2007/8; none this year; still got 4 undeveloped blocks) looked to resurect things. ‘Sorry”; no cash for it at the moment. “You’ll have to go back to your previous lender”. (Ummm… they’re in moratorium…)
June 30th, 2009 at 3:17 pm
I expect the Beehive is about ready to release its super immigrant plan any day now.
June 30th, 2009 at 3:17 pm
Great !
Architects, builders, plumbers electricians etc. watch out for 15km to work and back home “30km -petrol prices” and make sure it is in your quote for the next development(s). Hmm- expensive houses for….
June 30th, 2009 at 3:55 pm
What I can’t understand is if unemployment is currently increasing by 1,000 workers per week, where are the new wave of immigrants finding employment? They can’t be self funding because the majority are from India and the Phillipines.
June 30th, 2009 at 4:08 pm
Andy, 95% of immigrants are included in that figure.
June 30th, 2009 at 4:15 pm
I can’t imagine why lenders would be prepared to lend money on commercial real estate ventures at this juncture. The market here in Nelson is FLOODED with unlet commercial space. Worse, there are a number of just completed new buildings which are still unlet. Commercial real esate busts in the US follow residential real estate busts with an 18-24 month lag (see Calculated Risk blog for an excellent on-going analysis of this). I don’t know why anyone thinks NZ would be different………
June 30th, 2009 at 4:35 pm
The ol’ eye-ometer tells me that here in Chch there are absolutely hectares of unlet/see-through/WIP CRE space. And residential builders (those left standing) are discounting heavily: house/land pacakages around the $300K mark.
So, like Matt in AK and Janet above, I’d think there is a combination of Magical Thinking/Cargo Cult/Talking one’s Book in the reported figgers.
But the aged-care crates are certainly going up apace….and the bar-bitings, smells and screams seem to be tolerated by all concerned.
Mebbe That’s where the ‘confidence’ lies…
June 30th, 2009 at 4:54 pm
PGGW
are about to start selling their stores, working on %8 I believe…
June 30th, 2009 at 5:12 pm
“Adding to the gloom of winter and a recession, the price of booze is likely to rise when the Government increases the excise tax on alcohol by 2.8 per cent tomorrow. ”
Hahahahaha. Oh what a laugh. As expected, the robbery gets underway with gusto.
Next up, road user charges and every other user pays fee charge tax whatever will go up. Robbing Peter to pay Paul and all wrapped in humbug to fool the peasants into thinking it’s wise policy.