Biz confidence slips, consistent with moderating growth

Business confidence softened slightly in the New Zealand Institute of Economic Research's quarterly survey of business opinion, but remains sturdy.

Firms both report and expect a slight weakening of activity but only to levels indicative of annual economic growth slight above 3 per cent, NZIER economist Christina Leung said.

A net 19 per cent of firms (seasonally adjusted ) reported higher activity over the past three months and a net 25 per cent expect higher activity over the next three months, down three and two points respectively from the December survey but both well above their long-term averages.

A net 4 per cent of financial sector firms expect interest rates to fall over the year ahead, a level indicating how divided and lacking in conviction opinion on the question is. In the previous survey a net 17 per cent expect rates to rise.

Hiring softened, from a net 21 to a net 14 per cent of firms reporting an increase in staff numbers, but the previous quarter had recorded a dramatic increase and the survey's labour market indicators continue to point to robust employment growth. A growing and historically high proportion of firms say it is getting harder to find skilled labour.

Investment intentions for both plant and machinery and for buildings continue to strengthen and capacity utilisation is back at levels prevailing in the four years before the last recession.

Overall the survey's inflation indicators were subdued, Leung said. Costs and selling prices, both experienced and expected, weakened.

Leung does not believe the survey makes a case for an interest rate cut. Activity, especially in the domestic economy, was still pretty solid, she said.

Profitability, both experienced and expected, rose.

"The services sector has fared particularly well, buoyed by increased house sales in an environment of low interest rates and strong mortgage lending competition amongst banks," Leung said.

The manufacturing sector is also surprisingly resilient in the face of a higher cross rate between the New Zealand and Australian dollars.

A net 11 per cent of manufacturing exporters reported higher sales, up from a net 2 per cent in the previous survey, but export expectations continued to soften from the very strong levels the survey recorded six months ago.

In the construction sector both activity and new orders weakened. Architects see some softening in house building demand but a pick-up in commercial construction, Leung said.