Latest NZIER quarterly survey of business opinion shows a slight fall in pessimism but still plenty of worries

Business confidence improved modestly in the latest Quarterly Survey of Business Opinion (QSBO) from the New Zealand Institute of Economic Research (NZIER).

However, there are still a lot of worries out there. 

And a majority of businesses are expecting a softening of demand in the coming months. 

The survey shows a net 59% of businesses expect a deterioration of business conditions, down from 63% earlier. The survey covered the June quarter.

The slight easing of worries in the business community was accompanied by a marked easing in capacity pressure. The survey found there was in particular a significant drop in capacity utilization among builders and manufacturers. 

And a net 10% of firms reported difficulty in finding unskilled labour, compared with 37% in the previous quarter.

The retail sector was the most pessimistic, due to pressures on household budgets providing constraint on spending. The impact of higher interest rates is playing a part in this trend, as households keep their wallets shut to meet the higher mortgage bill which is either already here or due shortly. 

The manufacturing sector was also downbeat, with a net 63% of companies expending weaker conditions, with cost pressures increasing and the ability to charge higher prices slipping. The services sector had a similar experience with a net 63% of firms expecting weaker conditions.  

Demand is becoming the main source of pressure, not supply, according to the survey.

The survey found firms are still hiring staff. There was a net 5% increase in workforce headcount in the June quarter.  Furthermore, these employers expect to add another 4% to their workforce in the current quarter. 

But the investment story was very different.  A net 27% of businesses are planning to reduce investment in buildings, and a net 26% are planning to invest less in plant and machinery.

Severe weather played a part in all these problems. Unsurprisingly, the Gisborne area fared worse, with 92% of firms feeling pessimistic. But this was an improvement on the previous quarter when 100% of companies felt gloomy about the future.