-
Pedestrians in city - Source: ONE News -
Watch Video
-
Related
Economic conditions improved in the December quarter but at a slower pace than firms were expecting, a leading business survey shows.
The New Zealand Institute of Economic Research (NZIER) said it found business confidence had stabilised in the December quarter, following rapid recovery earlier in the year.
On a seasonally adjusted basis, a net 23% of firms in its Quarterly Survey of Business Opinion (QSBO) were optimistic, the highest level in a decade. In the September survey the figure was 22%.
In actual terms 31% of firms were optimistic in the December quarter, down from 36% in the September quarter.
"The economy remains in a holding pattern: expectations are rising across most indicators, but these are yet to be translated into action," NZIER said on Tuesday.
"For example, retailers expect sales to surge, yet they are not ordering new stock."
The surge in confidence had lost steam, probably due to a shallower than expected recovery.
Gaps between expected and experienced activity eased from record highs in the September quarter, but remained "very high", NZIER said.
The reading for seasonally adjusted domestic trading activity improved to -9 in the latest survey from -20 in the September survey, while expected activity was stable at +13.
Spare capacity had reduced as activity picked up, NZIER said.
Capacity utilisation of manufacturers and builders rose sharply in the December quarter to 91.1% from 88.4%.
The increase was evident across most firms, suggesting limited spare capacity when the recovery took hold, NZIER said.
Manufacturers reported rising exports and domestic sales, and builders were showing improving orders.
But there were fears of a skills shortage in the building industry.
"With activity being down by about 40% over previous years we have lost skills out of the industry and when work levels return back to normal there won't be enough people to do all the work," says builder Mike Fox.
Merchants and service providers continued to face difficult trading conditions.
The labour market remained weak, but hiring intentions had turned marginally positive and job-shedding had slowed, to a reading of -18% from -29%. Wage growth was likely to be subdued for some time yet.
Most labour market indicators had improved from early-1990s recession levels to those of the 1997/98 recession.
Profitability was improving, as costs had fallen more rapidly than selling prices. Manufacturers led the way in profitability with the highest turnaround on record, NZIER said.
The outlook was improving with only a net 2% of firms expecting profits to decline in the March 2010 quarter. Investment intentions were lifting in line with improving sales and profitability.
However, manufacturers have urged caution.
"People are feeling more positive but it is still extremely dire out there. It is by no means over," says Gordon Sutherland from the Manufacturers Association.
He says if the New Zealand dollar continues to appreciate there will be real likelihood of more redundancies.
NZIER principal economist Shamubeel Eaqub said that overall the QSBO suggested interest rates would need to be lifted around mid-2010, in line with recent Reserve Bank indications.
A still shallow economic recovery and still weak labour market suggested little urgency to raise interest rates sooner.
NZIER pointed out most of the survey was collected before
December 15, so may not fully capture the Christmas retailing
environment. Paymark data showed strong retail sales in the lead up
to Christmas, but a lacklustre post-Christmas period.
