NZIER survey reveals firms pessimistic about 2023's economic conditions as survey shows job ads in 'freefall'

Business confidence has plummeted, according to a new survey, with a net 73 percent of businesses expecting economic conditions to deteriorate over the coming month.

That measure of business sentiment is the weakest ever since the NZIER Quarterly Survey of Business Opinion (QSBO) began in 1961. It's worse than the 42 percent recorded in the previous survey.

NZIER survey reveals firms pessimistic about 2023's economic conditions as survey shows job ads in 'freefall'
Photo credit: NZIER.

The survey results, released Tuesday, also reveal a net 13 percent of firms reported a decline in activity over the past quarter - the weakest since June 2020 when the impact of the first COVID-19 lockdown was seen.

The NZIER's quarterly survey ran from November 29 to January 9, covering the fallout of the Reserve Bank's decision to hike the official cash rate (OCR) by a record 75 basis points and its forecast that inflation and the OCR would peak higher than previously thought. 

Governor Adrian Orr also went on to tell a Parliament Select Committee that the central bank was purposely engineering a recession to take demand out of the economy. 

The survey results highlight businesses "have become much more cautious and are now looking to reduce staff numbers and pare back on investment plans", NZIER said.

"However, shortages of skilled and unskilled staff remain acute despite the decline in hiring, with finding labour remaining the top primary constraint for businesses. 

"That said, a growing proportion of firms are also starting to report sales as the primary constraint for their business, suggesting weakening demand is beginning to impact more businesses."

While firms have been passing on higher costs to consumers by increasing prices, NZIER reports profitability has still weakened.

Among those particularly pessimistic about the economic situation are the building and retail sectors, the survey found.

A net 77 percent of firms in the building sector expect conditions to deteriorate.

"The decline in the sector's new orders and output points to a softening in demand over the longer term. While most building sector firms still reported intense cost pressures, the proportion of firms that increased prices continued to fall in the December quarter," NZIER said.

"The architects' measure of activity in their own office points to a continued softening in the pipeline of construction work over the coming year. The pipeline of housing and commercial construction for the coming year continues to decline, while that for Government construction work has moderated. 

"These results suggest construction activity, especially residential construction, will start to ease over the second half of 2023."

The building sector is concerned.
The building sector is concerned. Photo credit: Getty Images.

In retail, a net 76 percent of businesses are feeling downbeat about the coming months, with NZIER reporting weaker demand is limiting the ability of retailers to increase prices in the face of intense cost pressures. 

"With almost half of mortgages due for repricing over the coming year, many of those mortgages will be rolling off historically low fixed-term mortgage rates of around 2 to 3 percent onto significantly higher rates of 6 to 7 percent. 

"Consequently, substantially higher mortgage repayments should drive a slowing in retail spending over the coming year."

Treasury's Half Yearly Economic and Fiscal Update (HYEFU) in December forecast three-quarters of negative growth next year, meaning a recession. It also found that unemployment could jump from a near-record low of 3.3 percent in September to 5.5 percent in 2024.

Consumer confidence is also at record lows. A Westpac survey in December showed it had fallen 12 points in the previous quarter to 75.6, well below the confidence threshold of 100. That's the lowest consumer confidence has been on the survey since it began in 1988.

Reacting to the results, ASB senior economist Mark Smith said a general takeaway was that the "economy has run into a brick wall, with weak readings for the demand side of the economy consistent with recessionary conditions".

"Despite this, capacity pressures remain marked, with firms continuing to report extreme difficulties in obtaining skilled and unskilled labour, and with labour shortages still the major constraint on boosting production.

"Rather than falling, experienced and expected price rises ticked up, which along with increasing pressures on profitability and costs and the still-tight labour market highlights the risk of protracted above 3 percent rates of inflation."

He expects the RBNZ to follow through with forecast OCR jumps.

"Nevertheless, there is no sugar coating the fact that 2023 is turning out to be a difficult year. OCR cuts should follow in 2024, but not until the RBNZ is 110 percent confident that inflation will settle in the 1-3 percent target range. This still looks a long way off."

Trade Me saw job listings fall over the past quarter.
Trade Me saw job listings fall over the past quarter. Photo credit: Newshub.

Job ads down

The Recruitment, Consulting & Staffing Association (RCSA) on Tuesday also released its latest Jobs Report for the December quarter, showing job ads in "freefall". 

It said the national job index had dropped 22.4 percent in the past three months "signalling that business confidence and projected productivity may be in severe decline". 

Advertisements for staff across all sectors plunged, particularly in public administration and technology professionals, with overall job listings 26.7 percent lower than a year ago, it reported.

"The report shows there is a particularly sharp contraction and shift in talent acquisition efforts across all industry sectors in NZ," said RCSA NZ Council Chair Jon Ives.

"It's highly possible that we could see unemployment begin to rise from the historically low rate of 3.3 percent we saw in September last year."

With skill shortages still a major issue, Ives said some employers may have just "given up and withdrawn from trying to compete in the employment market".

He said it's also possible "previous efforts to attract staff are now being sidelined in favour of working to a perceived status quo (resignation to an inability to find suitable skills), which would then have a marked effect on general ongoing productivity and business confidence".

Trade Me reported earlier on Tuesday the number of jobs on the website fell nationwide by 12 percent over the last quarter compared to the same period in 2021.

"In the final months of 2021, the borders were shut and businesses were really struggling to find candidates," said Trade Me Jobs spokesperson Patrick Cairns.

"As a result, in Q4 2021 we saw more jobs listed onsite than ever before. Now, with migrants entering the country again and Kiwi feeling more confident to explore their options, it's no surprise that job listings have slowed."

He said it's also a result of rising interest rates as businesses may be rethinking their next hire. 

"This was especially the case for small to medium-sized businesses, who felt particularly weary of committing to employing new team members due to economic uncertainty."

With fewer listings, Trade Me found the average number of applications per listing grew 38 percent year-on-year in the quarter ending December 31.