Business confidence is continuing to improve overall - but there's been another sharp fall in activity indicators for the residential construction sector, according to the latest monthly ANZ Business Outlook Survey (ANZBO).
ANZ senior economist Miles Workman said business confidence lifted another 11 points in September to -37, while expected own activity rose 2 points to -2.
"Activity measures generally lifted modestly. Inflation pressures remain intense and are easing only very slowly," Workman said.
"Pricing intentions eased 2 points, yet is still more than three times the 1992-2020 average. Inflation expectations eased only slightly, and at 6% are still three times the inflation target midpoint.
"Pricing intentions, cost expectations and inflation are at best a little off their peaks, and remain very high," he said.
Residential construction intentions dropped sharply again, to a new all time low for the survey - although interestingly, commercial construction intentions had a sharp bounce.
But consistent with the falling intentions in the residential construction sector, pricing intentions in the sector dropped very sharply, particularly when compared with how elevated these intentions have remained elsewhere.
Workman said by sector, an intention to raise prices is most widespread in the retail sector (92% of firms intend to raise their prices in the next three months) and manufacturing (75%).
"The lowest proportions were in agriculture (52.9%) and services (60%).
"Construction sector price intentions have dropped the most dramatically, from 94% in March to 63% this month.
"As regards a specific numerical estimate of where firms’ own selling prices will be in three months’ time (figure 3), the strongest were in retail (+5.7%, down from a peak of 7.1% in March) and manufacturing (+5.1% versus a peak of 6.7% in April) (note these aren’t annual percent changes).
"Again, construction is the outlier in terms of how far pricing intentions have fallen."
Workman said the New Zealand economy "is at a delicate juncture".
"It’s fair to say that demand has not yet rolled over as feared as the Reserve Bank has raised interest rates.
"But insofar as the RBNZ can just keep on going until they see the cooling in demand they need to tame inflation, that’s likely to be a temporary reprieve, if not an outright double-edged sword for firms that have considerable debt.
"Inflation pressures are easing, but painfully slowly. It’s not enough for the RBNZ to see inflation pressures top out and ever so gradually fall. They will be concerned about the chance that wage and price-setting behaviour will change in structural ways that make bringing inflation down more difficult.
"We expect that the RBNZ will need to deliver a policy rate closer to 5% than 4% to get on top of inflation pressures.
"Meanwhile, similar dynamics are playing out globally as central banks take on inflation in over-stretched economies, and in some regions, very nasty energy shocks.
"Global interest rates have risen abruptly as markets assess not only likely average policy rates and inflation over coming years, but also the sustainability of fiscal positions in some highly indebted countries.
"Volatility seems likely to be a hallmark of the coming weeks and months; this could impact on both business and consumer confidence here in New Zealand, even if the causes are far away."
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.