Construction sector leads rise in business sentiment – NZIER survey

Business sentiment continued to improve in the last quarter of 2020 and more firms are feeling positive about the year ahead, according to a new survey by the NZIER.

The construction sector is leading the recovery but other sectors, like retail, also look set to hire more staff in the months ahead.

The Quarterly Survey of Business Opinion (QSBO) found that a net 16 per cent of businesses still expect a deterioration in general economic conditions over the coming months (on a seasonally adjusted basis).

But that was lower than the 38 per cent in the previous quarter, and well below the 68 per cent of businesses feeling pessimistic in March 2020.

When it came to firms’ own trading activity, a net 1 per cent reported reduced demand on a seasonally adjusted basis.

This measure suggested a rebound in annual GDP growth to around 2 per cent at the end of 2020 from the lockdown lows in mid-2020, said NZIR principal economist Christina Leung.

“So we are seeing a sharp improvement and overall their are signs of momentum building in the economy.”

The building sector remained the most optimistic of the sectors surveyed, as strong construction demand supported a lift in confidence.

“With the pipeline of residential, non-residential and Government construction work increasing, building sector firms are hiring to keep up with demand. The rebound in construction activity is driving capacity utilisation in the sector to record highs,” Leung said.

The labour shortage was becoming increasingly acute, she said.

There was now 99 per cent capacity utilisation in the sector, stronger than had been anticipated.

It reflected a view that many firms were now unable to do more business without an increase in costs.

Demand had improved in most of the other sectors, but firms were still finding it difficult to pass on rising costs by raising prices. This was weighing on profitability, she said.

Businesses were generally still cautious about general economic conditions ahead.

While sectors like retail were more subdued the sentiment had improved and demand was now less of an issue for firms than supply disruption problems.

While many business were still looking to reduce head count there had been a lift in expectations around hiring new staff in the next quarter – particularly in the retail sector.

A net 15 per cent of firms were planning to increase headcount in the next quarter, while a net 10 per cent of firms were looking to invest in plant and machinery.

These results indicated a recovery in employment and business investment over 2021.

As employment demand improves, labour shortages are becoming more acute. This is particularly the case for skilled labour, with a net 43 per cent reporting difficulty in finding skilled labour – close to levels seen in early 2020.

The New Zealand Institute of Economic Research has conducted its Quarterly Survey of Business Opinion since 1961.

It is New Zealand’s longest-running business opinion survey.

Each quarter it surveys around 4300 firms about whether business conditions will deteriorate, stay the same, or improve.

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