Bank survey highlights confidence, employment and investment intentions remain hum-drum

Business confidence, employment and investment intentions are tracking downwards.
Bank survey highlights falling confidence, employment and investment intentions Photo credit: Getty.

Following the Reserve Bank decision to leave the Official Cash Rate (OCR) on hold at 1 percent, companies' investment intentions and profit expectations have fallen to "dismal levels", according to the latest ANZ Business Outlook Survey. 

Based on responses from around 350-400 businesses, September results show that business confidence has fallen by 2 points, with a net 54 percent of those surveyed expecting conditions to worsen in the year ahead - the lowest result since April 2008.

While a net 8 percent of companies intend to reduce employment, investment intentions (-9) and profit expectations were also lower, each falling by 5 points.  A net 25 percent of respondents expect profits to decline, the lowest since April 2009.

From a borrowing perspective, despite the low-interest rates, a net 40 percent of companies expect it to be tougher to get credit. 

Sharon Zollner, chief economist at ANZ said that while pricing is one thing, availability of credit is another.  

"'Loan-to-value' (LVR) restrictions, tougher times within the construction sector and increased awareness of bank minimum capital requirements all affect price and availability of credit," Zollner said.

Also to fall were pricing intentions, with a net 18 percent of companies expecting to increase prices in the next few months.

Inflation expectations fell from 1.70 percent to 1.63 percent, falling half a percent this year to sit well under the 2 percent inflation target.  Commercial and residential construction intentions also fell, to -13 and -19 respectively.

Bucking the downward trend were export expectations, with a net 2 percent of companies expecting exports to rise, a response that ANZ calls quite muted" considering the fall in the exchange rate.

Although moves in key economic indicators were quite small for September, the results point to weakness in inflation.

Highlighting the retail sector as a key marker, 62 percent of retailers surveyed report higher costs (down from 69 percent in August), yet only 40 percent intend to increase prices.

Down 49 percent compared with October 2018, reduced pricing intentions indicate increased online competition and the delicate balance of maintaining profitability in a competitive environment. Many retailers are exposed to minimum wage increases, adding to pricing pressures.

Following the hefty 50 basis point cut to the OCR in August, the low investment and profit expectations are unlikely to be viewed as good news by The Reserve Bank.  However, the outlook is not all doom and gloom.

"The backbone of the New Zealand economy is still in place: commodity prices are still decent; population growth is positive and monetary conditions have eased.

"But the prolonged lack of confidence is starting to feed its way through the economy and is threatening the tight labour market," Zollner added.

Although still negative, employment intentions for the construction sector have bounced back, accounting for 9 percent of employment.  

Since 2009, there is no single sector of the economy that reports plans to recruit to increase net staff.  Employing a significant 74 percent of people across the economy, the services sector also appears to be surrendering to market conditions.

 "This gradual but prolonged economic slowdown is at risk of ceasing to be about data and starting to become about people," Zollner said.

 Statistics New Zealand labour market statistics for the June 2019 quarter showed that the unemployment rate fell to 3.9 percent, the lowest since June 2008.

 Despite reportedly half of New Zealand businesses struggling to meet last quarter sales targets, with the next OCR announcement due in November, followed by Christmas and the notoriously busy hiring period, whether spending, investment and hiring intentions can be lifted remains more of a waiting game.