Business confidence gets a spring in its step, but exporters and builders are more subdued

Business confidence improved in October, the National Bank Business Outlook survey found.

"After what seemed like a winter of discontent, we’ll take any spring that appears to be returning to our step," National Bank said.

Services, manufacturing and retailing improved, while exporting worsened as the New Zealand dollar rose over 75 USc.

Confidence in the construction sector worsened in October.

Confidence in Canterbury in October was higher than the rest of New Zealand despite the September 4 earthquake and aftershocks.

"Our composite growth indicator from the survey continues to flag a respectable year-on-year rate of growth of close to 4 percent by early to mid next year," National Bank said.

"This is pointing to solid demand, although the components appear more sketchy and scratchy nature," it said.

Here are the full results of the survey below. Our interactive chart is below that.

Business confidence picked up in October. A net 24 percent of respondents expect general business conditions to improve in 12 months time, up 10 points on the month prior.

Business confidence improved across all sub-components, led by lifts in services, manufacturing and retailing. Seasonal factors appear to account for a sizeable share of the lift such that the underlying movement was more muted. Despite a generally low level of outright business confidence towards the general economy (though improving), firms’ perception towards their own business remains perkier. A net 31 percent expect better times for their own business over the year ahead, up 4 points from September.

Such movements are well within the normal monthly variability of the survey, and while referring to it as a turning point may be a stretch, the precipitous five month decline has at least been arrested. After what seemed like a winter of discontent, we’ll take any spring that appears to be returning to our step.

The same small guarded steps in a positive direction are apparent across other survey indicators. Profit expectations improved. A net 10 percent of firms expect profits to be higher going forward, up from a net 3 percent last month. A net 8 percent of firms expect to be hiring staff over the coming year, a jump from the net 1 percent last month. Investment intentions rose 2 points.

The casualty in this months’ survey is export intentions, which dipped 12 points. A net 20 percent expect to be exporting more over the year ahead, down from a net 32 percent last month. After months of shrugging off the steady rise in the NZ dollar exchange rate, the breach of 75 cents against the US dollar appears to have been a tipping point. There are still positives for exporters. The NZD/AUD remains low and international soft commodity prices have risen 5.4 percent in the past six months.

Residential investment intentions and commercial construction intentions have failed to kick on. Both fell, with commercial construction going from -8 to -16, the lowest level since April 2009. Confidence within the Canterbury region is well above the national average across a number of gauges. A net 56 percent of Canterbury respondents expect better times for their own business for the year ahead (previously a net 39 percent). Employment intentions rose from 15 to 19, investment intentions from 8 to 22, and residential investment intentions from 42 to 78.

Our composite growth indicator from the survey continues to flag a respectable year-on-year rate of growth of close to 4 percent by early to mid next year. This is pointing to solid demand, although the components appear more sketchy and scratchy nature.

BNZ economists also saw the improved business confidence as indicative of growth of around 3-4% next year.

Here's their comment below.

Firms are getting on with the job of investing, employing and producing, judging by the results of the October NBNZ business survey. Confidence and activity indicators picked up in October. At face value, the activity indicator is consistent with economic growth of between 3% and 4% by mid-2011.

This fits nicely with our forecasts for the broader economy over the coming 12 months. Meanwhile, pricing intentions and inflation expectations eased back a notch or two but are still elevated, in absolute, and not at all comforting. This is especially so if firms have put the GST-hike behind them. All up, this survey is consistent with an economy still on a recovery path and consistent with the need for interest rates to push higher through 2011.