Latest ANZ Business Outlook Survey shows a sharp drop in confidence and own activity readings, while sentiment in the residential construction sector has 'tanked' and 'could hardly be lower'

The strain is showing for Kiwi businesses. That's the verdict from ANZ chief economist Sharon Zollner in the latest monthly ANZ Business Outlook survey.

The 'headline' result in the latest survey is that business confidence fell 14 points in November to -57, while expected own activity fell 11 points to -14, only 8 points shy of 2009 lows.

"The survey clearly indicates weaker activity ahead, which is what the RBNZ [Reserve Bank] is trying to bring about in order to lower inflation pressure," Zollner said.

While activity indicators may be weaker, the expectations of inflation have hit a new high.

Among specific sector results, the residential construction sector, having seen something of a lift in sentiment from low levels the previous month has this month in Zollner's words "tanked". 

"Activity measures were generally lower, and are trending down. Residential construction intentions plummeted to a fresh record low," she said.

"The survey is a mixed bag for the Reserve Bank. The survey clearly indicates weaker activity ahead, which is what the RBNZ is trying to bring about in order to lower inflation pressure.

"The construction sector is on the ropes, and is expecting to actually drop prices, in what would be a very welcome development from an inflation-fighting perspective, given how much construction costs have been contributing to CPI inflation."

Zollner said pricing intentions and cost expectations are falling – but the latter is barely off its highs, and pricing intentions are still far too high for the Reserve Bank to take comfort.

"Inflation expectations hit a fresh record high, which will not provide the RBNZ with any comfort whatsoever."

One thing that was dropping, however, was employment intentions - which went negative for the first time since late 2020.

Zollner said regarding a specific numerical estimate of where firms’ own selling prices will be in three months’ time, it was encouraging to see this fall to its lowest read this year, 3.7%.

"Expected cost increases eased for every sector except manufacturing and services, but outside of construction, it’s a stretch to say there’s a clear downward trend."

She said that on average, firms are still expecting margin compression, with costs expected to go up 6.1% over the next three months, but their prices by only 3.7%.

“Wage growth is a crucial determinant of non-tradable inflation in a tight labour market. Reported past wage settlements rose.

Expectations for wage settlements for the next 12 months are trending down for construction, but are sharply higher for retail, and are holding pretty steady elsewhere. The aggregate was unchanged at 5.6%.

Zollner said: "The strain is showing for kiwi businesses.

"Cost increases remain relentless and margins are squeezed, firms are chronically understaffed, and they’re waiting for the hammer to fall as the impact of relentless monetary policy tightening eventually kicks in.

"There are a lot of dark clouds on the horizon, and this month’s survey reflects that.

"More generally, pricing intentions are continuing to ease, but they are still much too high. And inflation expectations jumped back up to a fresh record high, with retailers expecting inflation of 7%.

"If everyone else is doing it, and customers are expecting it, then the fear of losing customers as a result of passing through cost increases is much reduced.

"The Reserve Bank is trying to bring that fear back by increasing consumers’ price sensitivity."