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Economy healthier after three dud months

Tuesday 11th January 2011

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A key economic indicator is indicating the economy rebounded in the December quarter after contracting in the previous three months.

Publishing its quarterly survey of business opinion (QSBO) today, the New Zealand Institute of Economic Research (NZIER) said the rebound was patchy, concentrated in large firms and in the upper North Island.

Activity fell sharply in Canterbury, reflecting economic disruption after the September earthquake.

NZIER principal economist Shamubeel Eaqub said the economy had avoided a double dip recession, but the recovery remained shallow and slow compared to previous cycles.

Seasonally adjusted business confidence had risen, with a net 3% of firms being optimistic, compared to a net 8% of pessimists in the September survey.

"This confidence is slowly filtering through to new hiring and investment, but this needs to accelerate to drive a sustainable recovery," Eaqub said.

Domestic trading activity, which mirrored economic growth, had rebounded with a net -1% of firms reporting an increase in the December quarter, up from -15% in the September quarter.

Expectations for the current quarter, which were a less reliable indicator, also rose, lifting to a seasonally adjusted net 13% from -2%.

In actual terms, domestic trading activity for the December quarter rose to 4% from -16%.

Sales volumes rebounded from a September quarter soft patch, driven mostly by merchants, NZIER said.

As most of the survey responses were provided before mid-December, the survey may not reflect the full Christmas trading period, with Paymark data having suggested a modest Christmas retailing environment.

A net -3% of firms reported an increase in the numbers employed, compared to -12% in the previous quarter.

The improvement in actual hiring was consistent with better employment opportunities. Labour was becoming harder to find, which would support wage growth during the next year, NZIER said.

In earthquake-affected Canterbury seasonally adjusted trading activity slumped to -33% from -6%. All sectors in the region reported weaker activity in the December quarter, with retail showing the largest slump.

Employment in the building sector soared in Canterbury to 28% from -11%, in anticipation of reconstruction activity, while the rest of New Zealand remained weak at -11% from -15%.

Nationally, building sector activity rebounded from weakness in the September quarter, but the level remained historically low. Optimism in the sector was up to 13% from 4%, while output improved to -11% from -29%, and new orders lifted to -11% from -30%.

The recovery was patchy, with construction firms experiencing the larger improvement, while building materials firms had pockets of weakness.

Manufacturing activity surged in the December quarter as output expanded to 13% from -5% driven by both export and domestic sales. Manufacturers were rebuilding inventories from historically low levels, NZIER said.

Business profitability had improved in the December quarter to -21% from -30%, but remained below year ago levels and was down on a seasonally adjusted basis to -27% from -26%.

"Tight margins have limited gains in profitability despite increased sales in the quarter."



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