Te Whanganui-a-Tara – Business confidence lifted another nine points in February to -43, according to the latest ANZ business outlook survey indicator levels.
February saw a further lift in all activity indicators in the survey, though many remain at very subdued levels, ANZ chief economist Sharon Zollner says.
Pricing intentions continue to inch lower but inflation expectations remain stuck around six percent. There was a marked drop in expected wage growth, however.
There was little difference between the early-month and late month responses.
The key themes of the February survey were:
Activity measures rose, led by the construction and services sectors
Inflation and pricing indicators barely moved; pressures clearly remain intense
On pricing measures, a net 71 percent of firms in the retail sector expect to raise their prices in the next three months, still high but well down from a peak of 96 percent six months ago, Zollner says.
“Overall, firms’ expect their selling prices in three months’ time to rise 3.4 percent, down slightly. A general downtrend remains evident in expected costs too. The economy wide measure eased from 5.8 percent to 5.2 percent.
“The data implies that on average, firms continue to expect margin compression, given costs are expected to lift more than prices. The implied margin compression is most extreme for agriculture.
“Wage growth is a key driver of non-tradables inflation, and the Reserve Bank is unlikely to stop hiking until wage-price spiral risks have convincingly dissipated.
“And here there was some encouraging news for the RBNZ. Reported past wage settlements fell from 6.7 percent to 6.0 percent, falling in every sector. Expectations for wage settlements for the next 12 months fell even more, down from 5.5 percent to 4.7 percent.
“However, expected wage increases were lower in the early-month sample before the minimum wage increase was announced.
“Overall, firms hope raising wages will be considerably less in the next 12 months than they did in the last.”
The survey period began on January 31, shortly after the initial Auckland flooding. A glance at the Auckland numbers at that time showed the Auckland region was actually considerably more optimistic.
Between the first wave of responses and the 25 percent that were received later in the month, the minimum wage was increased and cyclone Gabrielle hit.
ANZ is unable to disentangle the effect, if any, of the minimum wage increase announcement. Also, the initial direct impacts of the cyclone are not captured in the latest survey understandably, as very few responses were received from the North Island east coast regions following the flooding.
The shock value of the November monetary policy statement appears to have faded into the rear vision mirror as firms focus on the risks and opportunities that are front and centre. Activity related expectations are off their December lows.
The level of most indicators remain subdued and firms are still very wary, and understandably so. But they are getting on with the job.
