Tuesday, 2 October 2018

A good follow-up

The New Zealand Institute of Economic Research has followed up on an idea I threw out here in August, suggesting that somebody ought to ask New Zealand businesses exactly what was bugging them when they reported low levels of business confidence (and thanks for the credit in the latest Quarterly Survey of Business Opinion, guys, it's appreciated).

Here are the answers to the special question the NZIER included this time round.

While it's good to know more precisely what's on businesses' minds, in the event it's not hugely surprising. Most people had suspected that businesses were not enormously enamoured of various current economic policies, and sure enough government policy topped the list. The tightness of labour markets (staff availability, wage pressures) and its impact on profitability, are also right up there, as is profitability more generally.

As NZIER said in the media release, "Profitability continued to worsen, reflecting intensifying cost pressures for many businesses. Businesses remained pessimistic about an improvement in profitability", and the overall results in the QSBO were downbeat. Looking just at the "own activity" results, which track GDP pretty well, "Firms’ own activity for the September quarter and expectations for the next quarter both fell, indicating a slowing in economic growth over the second half of 2018".

Hopefully the support from still very supportive fiscal and monetary policy will carry us through whatever slowdown occurs in coming months: in particular, the lower Kiwi dollar has tilted overall monetary conditions in businesses' favour, even as the RBNZ has stood pat on already low interest rates. And let's trust that the long-running  post-GFC global business expansion will not blow a gasket, despite the best efforts of American tomfoolery to derail it.

That's the upbeat take. But if there's one thing that would give you special pause for thought, it's "consumer confidence" turning up in the graph above as businesses' third most pressing worry. I didn't expect it to rate so highly, but looking at it now, I can see why it's there. I'd finger the petrol price as one big factor: here in Auckland the regional tax, the general rise in fuel excise, the high world price of oil, and the weaker Kiwi dollar have resulted in a litre of 91 costing $2.35 - $2.40, and households aren't in a great place to absorb a thumping great whack like that. I also suspect that housing wealth effects, again maybe more in Auckland than elsewhere, have stalled or even reversed.

So the state of consumer confidence is something I'll be watching a bit more closely. Hopefully rising wages in a tight labour market will alleviate some of the budget pressures from the petrol station forecourt, and the September QSBO result of no rise in employment likely reflected firms' inability to find scarce labour, rather than any cutback in hiring intentions, which remain positive. I certainly wouldn't want to see any job insecurity thrown into the already fragile household mix.

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