Business confidence down as supply constraints continue to bite

Business / news

Freight hold-ups and labour shortages continue to put upward pressure on prices, hampering business confidence, according to the latest ANZ Business Outlook Survey

17th Dec 21, 2:34pm by Jenée Tibshraeny

Business confidence is slipping back, as supply constraints continue to intensify and put upward pressure on prices.

According to the latest monthly ANZ Business Outlook Survey, business confidence fell 7 points in December, while firms’ views of their own activity fell 3 points.

“Finding labour remains firms’ biggest problem, and is getting worse, while freight disruptions are also having a growing impact,” ANZ chief economist Sharon Zollner said.

“Every three months, we ask firms about what their most pressing problems are. Data for the December quarter shows that finding skilled labour and non-wage cost inflation continue to increase in severity.”

ANZ also asked businesses about freight disruptions.

“Here, the impact continues to worsen. Issues with outward freight have got steadily worse over time, while issues with inward freight have been more stable, but at a more problematic level overall,” Zollner said.

“This makes sense - not every firm is an exporter, but the majority have some kind of exposure to imported goods…

“It remains worst for retail, construction and manufacturing, with agriculture not far behind. But even services, a sector that was only lightly affected initially, is now reporting quite meaningful disruption. Clearly, supply-side problems are not going away any time soon. And they’re inflationary.”

Indeed, a net 64% of businesses saw higher prices - an “extreme” reading, according to ANZ. Meanwhile their annual inflation expectations sat at 4.42%, an increase from 4.24% in November and 3.45% in October.

Businesses are also struggling to access credit, with a net 71% finding it difficult. Only two months ago, a net 57% had a downbeat view when it came to ease of credit.

Zollner concluded, “None of these problems will be quickly or easily resolved, and they’re affecting both stress levels and profitability. But having trouble meeting demand is probably a better problem to have than not having enough demand.”

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13 Comments

by Brock Landers | 17th Dec 21, 2:42pm 1639705354

Imagine if we had an organisation whose job it is to ensure that monetary conditions are appropriate to ensure the economy isn't running too hot.

by jim hansford | 17th Dec 21, 3:13pm 1639707201

Yep imagine that... but we don't have one. We have a group that get paid a huge amount of money... and only ever get things wrong.

by RickStrauss | 17th Dec 21, 3:53pm 1639709607

Good news: houses are up!

Shame about businesses etc but oh well...

by bw | 17th Dec 21, 4:00pm 1639710018

There's only one business that matters.

..having trouble meeting demand is probably a better problem to have than not having enough demand...

That Demand will be paid for by accessing the Increased Debt Capacity in house prices, and applying The Wealth Effect. There. I hope we all understand now.

by jim hansford | 17th Dec 21, 4:58pm 1639713513

by J.C. | 17th Dec 21, 3:17pm 1639707426

Saw an image of all the new Teslas lined up on the wharf in Auckland. Who needs business confidence during boom times?

by bw | 17th Dec 21, 4:03pm 1639710187

And I just read a really good-news story. I have no idea of any other details other than the ones at face value. But it's what success appears to look like!

Robyn Denholm was born on 27 May 1963 in Milperra, New South Wales. She was raised there, where her parents owned a service station and working there Denholm handled the financial accounts, repaired cars, pumped petrol and became interested in cars.

Looks good. Young lass; in small town Aussie; interested in cars, working in M&D's business after school. And where is she today?

...Denholm was appointed... into the role of chair of Tesla Inc....in 2021 with a net worth of A$688 million.

by Jake Wiltshire | 17th Dec 21, 3:40pm 1639708859

With actual Q3 inflation of 2.27% and inflation forecast of 2.96% in this quarter equalling 12.3% per year accumulative. If the % quarterly increase continues at the same rate as it will likely do this quarter it will be 3.6% for Q1 making it 14% odd per year. Not a good prospect and interest rates will need to rise dramatically. The house of cards will start to tumble.

by WhiskeyJack | 17th Dec 21, 5:28pm 1639715329

Nothing an interest rate increase won't solve!

Seriously though, the cost of doing business is going up faster than the profit from being in business. The 'hyperinflation' of the 70's-80's was caused by oil prices going through the roof. Not because people suddenly had more money to spend and hence could afford to consume more. Yes increasing inerest rates eventually 'solved' this problem of rapidly escalating prices but I dare say, this inflation would have solved itself without increasing interest rates.

The same is true today, the increase in prices because of shortages, will constrain economic activity, without the need for the irrelevent (in this case) rate hikes, which can only reduce business productivity even further - thereby amplifying the shortages.

If a measure accounted for the quantity of goods sold, I have no doubt that it would become obvious, inflation is being caused by supply constraints - not availability of credit.

I bought a new chainsaw, the old price was $795, new price $995. This increase has nothing to do with availability of credit, it's all about scarcity of supply.

It is exactly a limits to growth scenario, but I have no doubt an innovative solution will be found.

by Jonny.Foe | 17th Dec 21, 6:34pm 1639719273

I've been doing some work for a company involved in shipping over the last couple of weeks. People have no idea how bad things are and how crazy the prices have got.

Basically, during Covid and as restrictions lifted, the US (and many other countries) saw a huge swing in spending from services (haircuts, meals out etc) to durable goods (Teslas, TVs, laptops etc). A huge proportion of the shipping containers ended up en route to America and the supply system started to breakdown. Demand for space in containers is around 20% higher than usual and the queues outside ports, and truck jams around ports are a nightmare. Drivers are walking off the job across the globe because they get paid by the load and they can't afford to sit around waiting to pick-up / deliver.

I didn't realise, but most shipping contracts are pretty worthless - if the shipping company does not want to ship your goods because the price you originally agreed is now too low, they just leave the container at the port and sell your spot to someone else. It is serious cowboy stuff. The shipping prices are only coming down now because a lot of companies can't afford to ship large bulky goods (e.g. sofas), and other buyers are entering medium-term contracts to secure affordable space now (on the basis they will pay more into the future)

Buyers and importers are responding to shortages by over-ordering goods to build up their inventories. This is creating a 'bullwhip effect' - exacerbating the whole problem further.

The move from services to goods is also creating mismatches between available workers and jobs - tightening the labour market - it takes a while for waiters to re-train as truck drivers.

Little old New Zealand is paying the price for higher goods and shipping costs - exacerbated by rising oil and energy costs. But, of course this does not stop amateur reckonomists (including Simon Bridges yesterday!) banging on about inflation being caused by Govt spending, or blaming Orr for not increasing interest rates enough!

by J.C. | 17th Dec 21, 7:32pm 1639722749

One of the problems of living on 'the Rock' that is NZ is that thinking is localized and the big picture ignored. Add to that the false confidence ('Nu Zillun iz speshul') and you get a situation where you can be blindsided quickly.

I have a client that distributes Ty brand soft toy products across Asia. Ty has chartered aircraft to get is products to the U.S. from China. It's just a single example of what's going on.

by J.C. | 17th Dec 21, 7:36pm 1639723018

'Amateur reckonomists'. I like this term. Don't see Simon Bridges as being any more competent in understanding the issues and economics than anyone else. Even the NZTE people concern me. Very good at gin slinging and cheerleading the 'NZ brand' (whatever that is supposed to mean), but having people who understand these logistics issues in-depth is crucial right now.

by Wrong John | 17th Dec 21, 7:29pm 1639722548

All in all, a rather depressing scenario for those of us in business. The last two years has been... long.