ANZ Business Outlook Survey shows the worst sentiment in the construction sector since 2009, while overall business confidence has sagged again and more firms are expecting to cut staff

ANZ Business Outlook Survey shows the worst sentiment in the construction sector since 2009, while overall business confidence has sagged again and more firms are expecting to cut staff

Sentiment in the construction sector has plummeted to its lowest level since 2009, according to the latest ANZ Business Outlook Survey.

And elsewhere in the economy things are not looking so flash either, with most of the indicators in the survey heading down.

The survey's main indicator, 'headline business confidence' fell 6 points to a net -44%.

In the arguably more significant (and less susceptible to 'political influence') measure of firms’ views of their own activity, this fell 3 points to +5%, the lowest read since August last year. Other activity indicators were also weaker.

The dire readings of future prospects for the construction sector come just one day after building consents figures showed strong activity in the past year and a record in Auckland. But such figures of course measure past activity. And economists generally think that activity is close to its peak now.

The significance of the latest survey is that it again shows a very weak picture of forward economic activity, just a week out from when the Reserve Bank has to make a decision about whether or not to cut the Official Cash Rate again in an attempt to stimulate the economy. It's widely expected that the RBNZ will cut again (to 1.25%) - and the ANZ for one is picking that it will need to cut again on top of this before the year is out.

ASB's also picking two cuts to the OCR before the end of the year, but in reaction to the latest ANZ survey, ASB senior economist Mark Smith said on Wednesday that the persistently weak business sentiment and a weak economic backdrop "provide growing risk that the trough in the OCR is below 1% in the current cycle".

ANZ senior economist Miles Workman said that in the latest Business Outlook survey most activity indicators fell to weak levels.

"The main theme this month was a sharp deterioration in sentiment in the construction sector across a wide range of indicators,"  he said.

“Residential construction intentions fell back into negative territory. Employment intentions and profitability expectations for the construction sector plummeted to the lowest since 2009.”

Here's some of the key stats from the latest survey:

•   Employment intentions fell from 0 to a net 6% of firms expecting to cut jobs. Investment intentions fell 3 points to flat. Capacity utilisation, which has one of the most reliable correlations in the survey to annual GDP growth, fell 5 points to 0, its lowest read since 2009.

•   Profit expectations fell 3 points to a net 16% expecting profitability to decline.

•   A net 42% of firms expect it to be tougher to get credit, down 2 points to a fresh record low since the series began in 2009. Agriculture fell to -69%.

•   Firms’ pricing intentions were unchanged at a net 23% of firms expecting to raise prices. A net 47% of firms expect higher costs, down 3. Inflation expectations eased 0.1%pts to 1.8%.

•   Commercial construction intentions plunged 25 points, while residential intentions fell back into negative territory at -16%. Signals out of the construction sector are deteriorating rapidly.

'A bit worse for wear'

“Construction indicators look a bit worse for wear, including net 33% of firms in the construction sector are intending to cut jobs," Workman said.

"The construction sector currently employs 240,000 people, some 9% of total employment, making it a meaningful driver of broader employment trends."

But it's not just construction. Workman says the outlook for the broader labour market is also deteriorating. Although the construction sector is far more negative than the rest, employment intentions are now negative in every sector. The services sector was "the last domino to fall"; the net -1% this month is the lowest since late 2009.

“The outlook for the economy is deteriorating. Despite generally good commodity prices and interest rates at record lows, the headwinds of a global slowdown and credit and cost constraints appear to be winning out. With the inflation outlook not consistent with the target midpoint we expect two more OCR cuts this year, helping the economy to find its feet once more," Workman said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

67 Comments

Comment Filter

Highlight new comments in the last hr(s).

But record consents to build. What’s going on here then?

Jinx. My guess is a healthy dose of whinging.

Well there are construction companies falling over regularly now, so something’s going on.

Unrealistic contract bids. Race to the bottom on price has caught up.

Also. Totally incompetent clients engineers who have not got a b...y clue what they are designing or specifying and load their ignorance and risk onto the poor b..rs who have to price and offer tenders on their crap to survive.

Vendor's trying to make their dirt more attractive by including plans and consent in sale. Problem is no one wants to take up the opportunity to do the development as numbers no longer adding up.

I predict consent to actual build will be low for several years to come.

Agreed, and a sure sign is if the Vendor would normally be the entity that also did the development is now selling, ie developer looking to sell onto another developer, ie looking for the greater fool.

Also I know of quite a few cases where parties obtained resource consents in 2018, are not intending to build for various reasons, but have decided to finish the consenting process by getting building consent. They figure they might as well go to that next step. Then they have a more attractive package to sell in terms of on selling the property.

How do you reconcile this with record consents in Auckland?

Consents are backwards looking, the survey is forward looking

Remember consents issued a month or so ago were often lodged months ago.

But Building Consents are for actual work to happen in the near future, so they should be excellent forecasts for building activity. Interest showed a while ago that about 95% of building consents get a code compliance certificate (= when a building is completed) and the vast majority within 2 years

Yes, typically. But in a market where confidence is falling quickly, much less reliable. We have entered totally different market conditions.

Also we are in a market where apartments are struggling to sell. In this scenario, much fewer of the consented designs will proceed to being built.
As I and others have said, it is very likely that the 95% figure will drop quite a lot.

It is possible that this percentage will reduce as the Auckland market is a lot softer now than when much of that historic data was collected. Less incentive to get building if prices aren't rising, perhaps. Will be interesting to see how this develops.

This is more true for stand alone, smaller developments. But a few high rise apartment developments can add a huge amount of new consents onto the market which planning could have started years prior when market was hot, and consented when market has cooled.

And since they need to be developed as an all or nothing project ie you cannot drip feed a high rise development onto the market, then what I would be looking for now is the usual prerequisite pre sales needed, and what the banks are saying the ratio has to be (plus 80%?).

Plus the number of developers that are going back to their pre-sales requiring them to top up price increases due cost increases.

Stagnant Auckland house prices/ sales.

As forecasted by me early in 2019

On the ground, are they seeing people not buying what’s being built (no shortage) now , so things don’t look good ahead?

Its good to see reporting on real expectations though I feel frustrated that the banks are the ones doing business outlook surveys which get press coverage.

Certainly the timing of re lease would appear to be being used to support the OCR lobbying that's being conducted.

All that said it is clear that this report bears similarity to what we are seeing on the ground. New build sales rates dropping and this is pressuring firms to consider reducing headcount. We are also seeing as trickle of developer insolvencies and slightly more mortgagee sales which point to trouble ahead.

Does anyone know if there are any equivalent reports produced by the Treasury ? I'd like to to read something that's independent of the banks if its available. Thanks for the help.

Are you asking for more, Oliver Twist?

No! You will accept watery bank gruel and like it!

Seriously, yes, that's something I'd like to see as well, to balance out the opinion sources.

Some of the poor employment sentiments are starting to appear in MBIE's Online Job Ads survey results.
Maybe these sagging conditions might soon also start showing in the labour market statistics as unemployment starts ticking up; unfortunately, at a time when migration and household debt are at record levels.

Only one way to know if the outlook is up or down and that is by looking at the sales of Ford Rangers.
At the moment plenty of tradiew have got them.When you see more Fotons and Great Walls being driven by tradies then you know how things are going.

At which point sentiment will be up in the autorepair sector.

What is going on here?
Pretty simple really.
We had a country that was going really well until the last election.
Then we had an election and 3 loser parties were combined to lead the country.
In very quick time they have turned a prospering country into a country that is not prospering, and no surprise as they have no competent ministers able to do anything successfully.

Spot on TM2

Uncle John new the shit was coming, that’s why he did a Tony Blair (and got the hell out of there). How a banker could be allowed to run the country and then move to head a bank is something that our constitutional laws need to rectify.

Bollocks, if John Key had stayed as leader of National, National would still be in power and leading the country and prospering.
This mush mash of socialists were only going to destroy the country with their radical socialist policies.
Where is the Prime Minister at the moment with the Maoris demanding their land back that they have been paid for.
If Ardern even contemplates stepping In and pandering to the Māori activists, she will set the country back hundreds of years and will ignite that much crap from the young Maoris that will be devastating to the people of NZ.
The thing is though, she is that naive that you wouldn’t know what she and her cohorts will do.
As “The Man” has stated many times before, this government will end up the most despised government of alltime, they are just incompetent.

Through most of 2013 and 2014 New Zealand had pretty average (2.2% - 2.6%) GDP growth. National were in power.
How does that reconcile with your view?
I'm not arguing that the current government are without deficiencies. But it's a pretty biased view to say the last government were great, and the current government poor, when it comes to economic management - when you look at the data.
Also, a whole range of wider market factors have changed, which are out of the government's control.

Talkback radio facts and concrete economic facts don't reconcile well.

A little selective with your data fritz. From 2014 to 2017 GDP growth was on an upward trajectory peaking at 5%. Key had served 3 terms. He got out at the top. I say good luck to him. Most career politicians hang on too long, and are pushed. Key achieved his objective “to be Prime Minster” probably 10 years ahead of when he expected to. He left on his own terms, with nothing more to prove. Key will be remembered for economic stability. Sadly I fear Jacinda will be remembered for economic mismanagement. She really is in way over her head.

12
up

Nonsense. National were in cruise control for nine years, let a ridiculous debt bubble drive the economy, and John jumped out the passenger side before the inevitable crash.
When we crash in sync with Australia, let's see you blame their Socialist Labor government and their 'Maoris'. Oh wait...

The Man2-- you nailed it.

13
up

TM2. Bullshit. World economy was on the slide well before JA took office and we could only prolong the debt bubble so long irrespective of which political party is in power. The only main difference is that now JA is in all these non residents can't buy kiwi homes. Harrah to that.

Well said Glitzy. I think many Spruikers are secretly smarting that the price of their over exuberance is iminent. You reap what you sow. Through no fault of the current political establishment, the tailspin begins. TM2 and Yvil's logic has it that if National were in power the entire world would be prospering!

The economy was going just fine in NZ and Winnie comes on and says that things were going to deteriorate as he knew that he was getting into bed with a bunch of people that had no experience or expertise in business.
You can say what you like and defend this mush mash lot, but over the next year you will see them self explode as things come to a head.
You are obviously a supporter of this COL and your perogative, but where is your so-called leader when there are many issues happening in NZ?
Yeah she is holidaying again on the NZ taxpayer in Tokelau where her father is, and a place that has no benefit to the financial prosperity to NZ!

...you're sounding more disillusioned by the hour. Thankfully, the sane majority don't concur with your views. Its funny that other Spruikers like Due Diligence (buylowsellhigh) think the economy is humming along and DGM's are exactly that - DGM's.

Perhaps you should you now be classed as a DGM.....

10
up

yeah good point, plenty of spruikers on this forum who say the economy is going fine and that will help support house prices.
Not sure if they really do think the economy is going fine, or whether that is just part of their spruiking BS....

RP,,of course I am disillusioned.
Everyone should be that lives in NZ.
Storm clouds have formed over NZ as this COL still remains in power, and more and more incompetency is showing up.
RP,please can you advise us all, what are the beneficial things that this COL has done for the country?

TM2, I thought you already knew Labour's achievements. If they gave you a wide berth, it could be because you're a Speculating Landlord.

https://www.labour.org.nz/tax

I rest my case RP!
How you can defend their performance is mind boggling

How you think you're intellectual is mind boggling

TM2, Simon Bridges is a vacuous muppet. I can see exactly why you want him in power, he's at your level.

What elements of the economy were doing well / being run well?

Get your blinkers off.. look at the world economy, not just nz.

Shows how juvenile you're

Property speculators are not known to be the most intellectual or balanced of people.

Firstly I am not a speculator.
We are extremely good property investors.
As to intellectual?
If it was being compared to yourself Fritz, I would be considered to be extremely intellectual!

I commend your self confidence..

TM2, if yourself and Yvil were a smart investors you both would have already factored in the possibility of a widespread backlash against National Party and its policiy. You clearly have a grievence.

I even recall REA-TTP predicting on election night that National would be forming a Government the very next day!

None of what's happening should come as a surprise to those with foresight.

How many Spruikers said here the Coalition wouldnt last a year?

The world economy was always in the toilet. We used to be head and shoulders above the rest.

You must be tm2's twin.

After seeing how miserable you are in basic maths, do you understand anything relating to economics..

That's two insults in two comments with no substance. Tell me, is this the school playground or are you an adult?

[Duplicate]

.

"Hamilton's economic confidence, growth outpaces nation | Stuff.co.nz"
https://www.stuff.co.nz/business/114644854/hamiltons-economic-confidence...
Waikato keeps on trucking!

Yet every day more and more beggars appear outside my local supermarket.
A drive down the main street show many empty shops and if you go down the side streets their are just as many.A short drive thru the industrial zones shows plenty of industry but most have moved from other parts of Hamilton.
Only growth industries in Hamilton are coffee shops, resthomes and takeaway shops.Sreets jammed with Courier vans delivering junk purchased online.
Yep..Hamiltons on fire.

Can not be true, Jacinda stated that she would be reducing child poverty and yet the no.s have doubled.
Yeah she is doing a great job.

Thanks to the housing crisis created by the previous government

..and what excuse will you find for the government not delivering on their key election promises of building 100'000 affordable homes and significantly reducing immigration?

I'm not a pessimist like you. You done with the elephant scrubbing

DGM, you say you are not a pessimist and yet you go on about house prices dropping?
You certainly are not a realist, if you were you would be seeing how poor this COL were doing.

Do you know the meaning of Realist.. you clearly don't..

Might be a young Kiwi. A young Kiwi talking about improving affordability of home ownership would be an optimist, not a pessimist.

My business operates in the construction sector. We are seeing an increase in delinquent debtors and my competitors are seeing the same, the riff raff are being weeded out. Definitely people out there looking for work.

Yeah Sluggy thats the signs I'm seeing as well. You need to be in contact with the people actually doing the accounting and looking at the bottom line numbers, not the sales people still talking up the market. The wheels are starting to come off and business confidence is falling off a cliff.

All good, nothing to see here.
Next stage of housing collapse is when developers and builders flood market to cover extra payments required by their lenders. 3 months max I would say. They stood on the Beach as the tide went out... there is not enough time to get up the hill now as it comes in

When property developers are unable to sell their completed projects, experience cashflow difficulties and the receivers are called in. Receivers sell the remaining units at lower prices in order to get them sold and raise cash to repay the lenders & minimise losses for lenders.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...

This government was going to increase the number of houses being built, so why are there businesss in the building industry looking for work?
That’s right, it isn’t happening just like all the other policies!

Mikekirk29

"Next stage of housing collapse is when developers and builders flood market to cover extra payments required by their lenders."

What are the extra payments required by their lenders? Can you elaborate further. Please assume that we know nothing about construction financing terms.

Your access to our unique content is free - always has been. But ad revenues are diving so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.