As hundreds of business leaders gathered at the Government’s Jobs Summit last Friday to generate ideas for saving or creating jobs, the week’s data highlighted the extent of the threat to the jobs market.
The NBNZ business confidence survey for February was extremely weak, with a net 41% of firms expecting overall conditions to deteriorate over the next year. Own-activity expectations ticked up slightly to a net -20%, but this was still easily the second-worst read in the 20-year history of the survey. The key activity components were generally on the weaker side – investment and export intentions, already at record lows in the previous survey, slid further again, while profit expectations were barely changed at -41%. And employment intentions fell heavily, with a net 29% of firms expecting to shed staff over the next year.
It’s telling that businesses have yet to see any improvement in conditions, despite another jumbo-sized 150bp rate cut by the RBNZ in January. The New Zealand economy has already had to endure a domestically-driven recession, and now faces the worst global slowdown in decades. Labour hoarding, and switching into understaffed sectors, have reached their limit, and businesses are now looking at ways to make cutbacks. The survey supports our view that more stimulus is needed.
The RBNZ will also have gained some comfort from its quarterly survey of inflation expectations. The average forecast for two years ahead dropped from 2.7% to 2.3%, a significant change from the record high of 3.0% recorded just six months ago. This will have provided a significant surprise to the RBNZ’s forecasters, at least in a technical sense – their econometric model generates its own forecasts of this survey, and we estimate that it would have anticipated an unchanged read. This alone would shave around half a percentage point from the model’s 90-day rate projections, relative to the December MPS forecasts.
