Keep on keepin' on

Last week’s releases completed the suite of confidence surveys for the latest quarter. The message across the surveys has been broadly similar: New Zealanders have become more concerned about the general state of the economy over the course of this year, but are still relatively comfortable with their own positions.

The September Quarterly Survey of Business Opinion showed that confidence in general economic conditions declined sharply for a second quarter, with a net 20% of firms feeling confident about the environment compared to a net 52% in March. The moderation in general sentiment in recent months is not surprising, given the 100 basis points of tightening by the Reserve Bank this year, the sharp price declines for some of our key exports, and perhaps the uncertainty around the outcome of last month’s election.

However, when firms were asked about their own experiences, and their expectations for the near future, the results were remarkably similar to those in the June quarter survey. This is consistent with the economy continuing to expand at a healthy pace over the second half of this year, supported by continuing increases in construction activity (particularly in Auckland and Canterbury), as well as the boost to demand from strong population growth. Importantly, these factors appear to be contributing to more generalised strength in economy activity, with the number of firms planning on increasing capital expenditure and staff numbers remaining at above-average levels.

The tone of the QSBO chimes with Westpac-McDermott Miller’s household surveys for the September quarter. Consumer confidence fell but remained at a historically high level, while confidence about their own regions’ performance generally held up well – even in the rural areas, where the reality of a substantially lower dairy payout for this season may not have been felt by many yet. And the Employment Confidence Index actually bucked the trend with a small increase over the September quarter, with more households reporting pay increases and a greater availability of jobs. The labour market typically lags the broader economic cycle, so last year’s economic upswing will still be the dominant factor here.