KEY POINTS:
A marked lift in business confidence has shown up in the latest Quarterly Survey of Business Opinion (QSBO) published today by the New Zealand Institute of Economic Research (NZIER).
For the first time in four years a net balance of firms taking part in the December quarter survey
expect the general business situation to improve in the next six months.
The QSBO puts the balance of firms in the December quarter expecting an improvement at 3 per cent.
It is the first time since the December 2002 quarter that the net balance has been positive.
Seasonally adjusted, a net balance of 5 per cent of firms expected a deterioration in the next six months, but that was a significant decrease from the 24 per cent expecting deterioration in the September quarter and 39 per cent in the June quarter.
Deterioration expectations, seasonally adjusted, peaked at 70 per cent in December 2005.
The increase in the general business confidence statistic was reflected in all regions and business sectors for which separate data was analysed, NZIER said.
Seasonally adjusted the number of firms reporting an increase in their own activities was 6 per cent more than the number reporting a decrease. Last quarter, the net balance was zero.
A net balance of 13 per cent of firms, seasonally adjusted, expected their own trading activity to lift in the next three months from its level in the December 2006 quarter.
By historical standards, investment intentions were positive, particularly for plant and machinery, NZIER said.
In the September survey, a net 2 per cent of firms had expected to invest more in plant and equipment in the next 12 months.
For the December quarter that figure was up to 13 per cent, the highest figure recorded since September 1995.
At the same time, the proportion of firms increasing selling prices in the past three months was down to 21 per cent in the December survey, from 32 per cent recorded in September.
The net balance of firms intending to increase selling prices in the next three months was unchanged in the December survey at 28 per cent.
The net balance of firms experiencing cost increases in the previous three months dropped from 54 per cent in the September survey to 40 per cent this time.
Capacity utilisation had eased back to 91.7 per cent, from 92.3 per cent in September, but was still high by historical standards and comparable with levels last seen in early 2005.
A net 14 per cent of firms intended to increase staff in the next three months, up from a net 6 per cent in the previous survey.
Meanwhile, the difficulty of finding skilled labour, which had been easing since early 2005, had turned around and increased in the December quarter.
A net 29 per cent of firms reported it was harder to find skilled labour, up from a net 21 per cent in September. A net 11 per cent of firms reported difficulty finding unskilled labour, up from 7 per cent.
The percentage of firms reporting the availability of labour as the single factor most limiting their ability to increase output had increased again from 14 per cent in the September survey to 19 per cent, NZIER said.
A net balance of 12 per cent of firms reported a decline in profitability in the past three months, while a net balance of 1 per cent expected an increase in the next three months.
For firms operating throughout the country the confidence measure increased from -23 per cent to +11 per cent.
For those operating mainly in the upper North Island, the change was from -15 per cent to +11 per cent.
For firms operating mainly in the lower North Island the statistic went from -15 per cent to -4 per cent, while for those operating mainly in the South Island, it went from -29 per cent to -15 per cent.
Citigroup Australia and New Zealand economic and market analysis director Annette Beacher said the December quarter survey was a vast improvement on the other three surveys of 2006.
An acceleration of activity towards the end of 2006 appeared widespread, she said.
Business and consumer sentiment, net migration, and home sales and prices had all ramped up a notch or two despite a year of explicit interest rate tightening bias by the Reserve Bank.
The time was now ripe for the Reserve Bank to follow up its rhetoric with action, starting 2007 with a vigilant stance to dampen appetite for consumption and home investment, Ms Beacher said.
A 25 basis point rise in the Official Cash Rate, lifting it to 7.5 per cent, was Citigroup's "base case".
NZIER director Brent Layton said the fall in the price of oil had been a significant factor behind firms' optimism and cost expectations, and to some extent behind profitability figures.
Oil touched a 19-month low below US$52 last week, pulling back from a peak of US$78.40 in July.
The NZ dollar lifted on the release of the survey at 10am, from around US69.35c to above US69.65c within the next 40 minutes.
- NZPA