Business Outlook
April 2010
Firming Up
Confidence abounds within the National Bank Business Outlook survey. A net 50 percent
of respondents expect better times over the year ahead. This takes confidence back
to levels seen in February. When we look at the sectoral mix, there is a pretty
consistent picture: firms’ assessment towards the general economy is extremely perky.
Even the agriculture sector has recorded an improvement in business confidence in
the month despite the drought, though the level continues to lag those of the other
sectors.
We continue to pay close attention to firms’ own activity expectations – a key lead
barometer that tracks economic growth. Perkiness towards the general economy is
spilling over into firms’ assessment towards their own business, with a net 43 percent
of respondents expecting better times ahead. This is the highest level for the own
activity reading since May 1999 and reverses the lull seen in March.
Importantly, the improvement is pretty well across all sectors. Despite still low
levels of building consent issuance and the likelihood of private commercial construction
activity slowing, the construction sector recorded not only the largest monthly
increase in their own activity outlook, but also has the highest level.
The positive expectations towards their own businesses look to be spilling over
into other survey indicators.
- Profit expectations are up 7 percentage points to a net 26 percent expecting higher
profits over the year ahead – a level not seen since May 1999.
- A net 13 percent expect to be hiring staff over the year ahead – a jump of four
points on last month. This is the highest reading since February 2005.
- A net 10 percent of businesses expect to be investing more. This is up only marginally
on the month prior but the trend has been improving for a year.
- Export intentions have risen to its highest level since September 2007. A net 35
percent expect stronger export volumes over the year ahead, an improvement of 10
percentage points.
Our composite growth indicator from the survey continues to strengthen. It is now
signalling year-on-year growth of 5 percent over the coming year.
If there is an element of caution that must accompany stronger economic prospects,
it is the outlook for inflation. The latest CPI data point to inflation remaining
contained. But inflation expectations rose marginally and pricing intentions in
our survey continue to nudge up. A net 26 percent expect to be increasing prices
over the year ahead. This is up only marginally on March and is not at a level that
brings inflation tremors. Yet the trend remains up, particularly in the service
sector which tends to be a sticky type of inflation dynamic. Based on the service
sector pricing intentions reading, non-tradable ex-housing inflation look set to
rise from the current 2.2 percent level towards close to 4 percent by the end of
the year.
For the first time since March 2001, more respondents expect the unemployment rate
to fall than rise. With this also comes stronger expectation that interest rates
will rise, with a net 72 percent expecting higher interest rates over the year ahead.
That firms’ assessment towards their own business and their wider outlook continues
to improve despite expectations of higher interest rates is comforting.
Slowly but surely the economic recovery is firming - or what seems to be accelerating.
The survey is flagging the potential for a typical strong pro-cyclical upswing in
momentum, with the possibility of 4 to 5 percent growth in the year ahead. At this
stage, investment intentions are lagging the pick-up in firms’ own activity expectations.
But there is no doubting the improving trend. We take particular heart from the
rising trajectory for profits. Now we know 2009 was a poor year on the profits front
(the amount of company tax paid was down 12 percent on 2008, after adjusting for
changes to the company tax rate) so the uplift is somewhat of a bungy cord dynamic
at play. But if expectations reading is maintained and matched by reality, then
increased hiring and investment will naturally follow. In fact we already seem to
be seeing this occuring across some listed companies. If it continues and small-to-medium
sized enterprises follow, then the "statistical" recovery that started
in mid 2009 will have some real legs.
Survey Results
Net Balance
April 2010
|
Total
|
Previous
Month
|
Retail
|
Mfg
|
Agric
|
Constrn
|
Services
|
|
Business
Confidence
|
49.5
|
42.5
|
48.7
|
46.1
|
28.3
|
62.5
|
53.1
|
|
Activity
Outlook
|
43.0
|
38.6
|
36.5
|
50.0
|
28.3
|
56.1
|
42.1
|
|
|
Exports
|
34.5
|
24.9
|
...
|
43.4
|
...
|
...
|
...
|
|
|
Investment
|
10.2
|
9.3
|
9.5
|
13.2
|
6.5
|
7.4
|
9.3
|
|
|
Livestock
|
17.6
|
12.5
|
...
|
...
|
17.6
|
...
|
...
|
|
Capacity
Utilisation
|
24.5
|
20.9
|
9.6
|
27.6
|
22.8
|
28.6
|
25.6
|
|
|
Residential Construction
|
50.0
|
42.8
|
...
|
...
|
...
|
50.0
|
...
|
|
|
Commercial Construction
|
12.9
|
17.5
|
... ...
|
...
|
...
|
12.9
|
... ...
|
|
|
Employment
|
13.4
|
8.7
|
0.0
|
16.3
|
4.4
|
24.4
|
15.9
|
|
Unemployment
Rate
|
-4.1
|
6.1
|
1.3
|
-9.7
|
13.0
|
-17.0
|
-4.8
|
|
|
Profits
|
26.1
|
19.2
|
25.7
|
28.2
|
13.3
|
39.0
|
24.4
|
|
Interest
Rates
|
71.8
|
64.5
|
64.4
|
68.5
|
64.5
|
72.5
|
77.0
|
|
Pricing
Intentions
|
26.4
|
25.5
|
22.9
|
27.2
|
21.7
|
36.6
|
25.8
|
|
|
Ease of Credit
|
8.7
|
2.0
|
-2.1
|
14.1
|
21.9
|
2.7
|
7.8
|
|
Inflation
Expectations
|
2.67
|
2.64
|
2.52
|
2.66
|
2.53
|
2.74
|
2.76
|
|
The table can be viewed as charts on our Business Outlook charts
page.
If you would like to become a respondent to our survey, send an email to
economics@nbnz.co.nz with your business location and industry sector. For
details on the nature and performance of the Business Outlook please refer to this
file:
www.nationalbank.co.nz/economics/outlook/pdf/BOBackgroundPaper.pdf.
This background paper also contains enrolment forms for new survey respondents.