Pessimism Still Dominates

BNZ Confidence Survey 0800 ASK BNZ 0800 275 269 www.bnz.co.nz

PESSIMISM STILL DOMINATES

The response rate has dropped away a bit for this latest survey so we’ll keep an eye on that. This latest survey has produced a still high level of pessimism similar to last fortnight’s survey. The latest result is a net 52% pessimistic from 50.3% a fortnight ago and a low of 62.1% a month ago. Fresh news has been thin on the ground recently and clearly the Budget has not had any discernible impact. The general tone of comments about particular sectors is the same as in the last couple of surveys with signs of things tightening up a bit on a general basis but still the only really major expressions of concern coming out of the forestry and fishing sectors – plus export education where there is a lot of concern about the role of the government.

Survey Date Better % Same % Worse % Net % # of respondents # of comments
17 February 20.3 41.1 38.5 -18.2 423 -
3 March 17.2 40.2 42.6 -25.5 687 224
17 March 8.5 36.5 54.9 -46.4 550 294
31 March 6.1 27.7 66.2 -60.1 393 201
13 April 6.0 31.8 62.2 -56.3 336 165
28 April 6.2 25.6 68.2 -62.1 340 185
12 May 7.2 35.2 57.6 -50.3 304 148
26 May 6.1 35.8 58.1 -52.0 179 81

INDUSTRY COMMENTS FROM THE MAY 12-16 SURVEY

Accountancy

- Should be about the same…Chartered Accountants.

Agribusiness Consulting

- Generally steady demand for services but this requires a more active level of prospecting whereas the work tended to flow in 2003 & 2004 with little marketing effort.

Agriculture

- Sheep and Beef - The fall in the dollar looks promising. Favourable early winter grass growth holding stock prices up.

- Dairy & Sheep & Beef - bit nervous - not good news regarding Fonterra payout.

- Sheep & Beef. Holding. Maintaining firm control on spending. Rising cost of insurance/ACC annoying. Leasing capital equipment rather than purchasing. Main shear wool returns 8% down on expectation due to climbing NZD. Lamb prospects good, international commodity prices low when adjusted for international inflation. Beef schedule indifferent but cattle doing well on farm. Good rain today.

- Excellent farming in Eastland

Agriculture Education

- Minister Mallard’s proposed changes to the EFTS funding for less than 40 credit training packages.

This will impact cost wise on may farmer education programs including compliance training for agrichemical approved handler and FarmSafe programs.

Agricultural Machinery Manufacturing

- Continued high dollar affecting farmer returns and export sales potential. Labour rates rising with increased difficulties in obtaining skilled labour means off shore manufacturing becomes increasingly attractive

Art Materials

- Supply market is very tight. Our company is probably going belly-up. The wholesale & retail arms of the business will be separated & the retail part is up for sale. Any offers?

Boat Building

- General confidence in the economy by our customers is meaning we are still getting orders. The dollar has to change though for us to grow.

Business/Financial Consultancy:

- Continues ongoing activity marginally over normal capacity with steady specialist referrals for technical situations at above average for this time of year. Just through usual slow down in invoice payments now that March GST & early April terminal tax payments achieved by clients & normal cash flows enable settling of regular commitments. Budget presentation viewed as barely neutral with little in it for professionals & those with +$6o,ooo incomes (which are little more than average/needed in other than the bureaucratic/socialist blinkered mind). Certainty for election date features in many client minds, as they determine how to approach the ongoing 4 to 6 months.

- SME Consulting & Support Services - Downturn with prospects becoming very price conscious and also wanting more for their money. Tendency to be seeking out free support from agencies such as Chamber of Commerce and BizInfo/Enterprise Training as preference to any capital spend. Not upgrading IT or administrative systems because of cost.

- Business advisory and accounting: Plenty of non compliance work. Clients looking to buy/invest or start up new business’s.

- Business Consulting: sales revenue has slowed in May and a further decline is expected in the four weeks prior to the election.

- We are (mainly financial) consultants to the SME sector. While there are some signs that the business cycle is starting to slow down, this is normally neutral to our business and in fact may provide additional opportunities as businesses’ cash dries up.

- Business Services. We are very busy but its that time of year. Increasingly seeing some warning signs on the horizon wage costs moving up steadily but unable to keep prices up to fully recover. so that can only continue for so long. Still that shortage of skilled people across the board. Will the Governments scheme to encourage school leavers to go to university skew this even further have our skilled labour force got any value. I believe its all an indicator of problems to come

Cleaning Products

- Manufacturing and sales of cleaning products. Business as usual.

Computing

- Tight at the moment in the Internet sector - clients very cost conscious.

- Rising costs of business risk are having an adverse affect on growth in the computer industry.

Construction

- Commercial construction has a huge work load ahead over next 12 months, hospitals, prisons, airports, hotels.

Construction Equipment

- Still good. There are indications of margins being squeezed on occasion but this appears to be more about carrying additional cost as opposed to passing on cost increases to customers.

Construction equipment sales may have eased slightly in May but the continued good weather has enabled project pace to remain high.

Credit Reporting & Debt Collection

- Recruitment has stabilised and the tightness in the labour market seems to be easing. Conditions remain firm despite most sectors reporting a steady decline in their overall trade payments compared with 12 months ago. Business needs to watch out for an increase in credit risk.

Electricity/Energy

- Structural uncertainty & risk of ill-conceived political intervention is a concern and potential brake on investment. Qualified staff difficult to attract in several disciplines/skills within our business (although retention pretty good). Increasing interest in informed public debate over future of energy supply/delivery in NZ is good to see - hard decisions are needed if we are to avoid problems in near future.

Engineering Supplies

- Steady

- Engineering Component Importers. Phones are quieter, sales slowing, money harder to collect.

Export Education industry

- (Note for those unsure this mostly means overseas students/tourists studying IN New Zealand for short and long term courses). Still slow and likely to get a lot worse for tertiary sector next year as the China boom of 2001/2002 works its way through and very few new bookings come in. English language sector remains slow. Nothing is being done to help this important sector. Why a drop of $100 millions in revenue for NZ over the last few years from places like Japan, Korea, Brazil etc has had no reaction and no attempt from Govt to rejuvenate?

- Just had grim pan industry meetings. Given that Govt is trying to squeeze us into their state model, things could hardly be worse for us. They plan to allow Wtn bureaucrats to dig through our private companies financial records in order to "ensure the industry is financially viable for foreign students".

This is the biggest of many battles we are fighting, which allows less and less time to get on with the job of restoring the profitability of the industry in the face of a high NZ$. No fun right now in our sector!

- The education sector at present seems very flat. It is possible that there will some up turn in foreign students coming to New Zealand due to the government’s new stance on fees and scholarships.

However, this new policy is likely to have little real effect due to the layers of bureaucracy that will surround its implementation.

- Tertiary education has relied on foreign students to assist with balancing the books. There has been a noticeable drop off at our institute and slow domestic demand due to low unemployment rate.

Flooring Retail

- (Carpet vinyl etc) Softening in domestic, Commercial staying the same.

Forestry Retail

- Steady to lower sales expected as wet weather affects conditions and the working hours.

- Forestry--totally depressed, theft of carbon credits has stopped all new planting and development.

- Sawmilling industry very difficult. High dollar, world supply/demand issues, forest ownership/management RMA, compliance issues etc.

Furniture Supplier

- Retailers are in large be-moaning state of trading conditions and demanding higher margins but doing little to earn them. Seems many are not helping themselves those that do are winning! Too much apathy in retail trade!

Hospitality/ Boutique bar

- Trade remains flat @ 10-15% below Budget. The early evening trade ( 5 - 7 p.m.) has gone forever as a result of the Smoke Free Law.

- Hospitality Industry ( Bar & Restaurant ) Having to pay more, offer more rewards, & generally be smarter about finding & keeping good staff. It will be a tough year for this industry given the swathe of new regulation to hit this trade.

IT

- Shortage of new qualified software developers. IT Development sector

Joinery Manufacture

- Still busy with potential forward orders looking good but yet to be confirmed. Delays on up-coming jobs are definitely increasing as builders and developers find it increasingly hard to get decisions without obtaining multiple reports to confirm it’s not the council’s fault if there’s a problem later. This is adding direct costs (and there’s no incentive for councils to reduce these requirements for reports etc as they are not their cost) as well the cost of time delays that ripple through the entire economy eventually.

Legal

- Do not pick much change. However business is still good.

- Fewer deals, more insolvencies, lots of resentment at the lack of tax reductions in the Budget.

Machinery Distributor

- Sales down around 25% on last year. High USD should of improved our margins but we have had to reduce our prices to secure business. Our customer base of 650 NZ companies are generally reporting a downturn in sales. Workshops are busy as many end users are repairing old equipment instead of replacing.

Marine Equipment

- Damn hard work getting paid and a lot of companies we deal with are not in a happy place. Could be due to the end of summer, finally. Time will tell.

Market Research

- Political polling activity starting to hot up although in terms of the industry as a whole this is minor, despite the high public profile. Woolworths Australia acquisition of Progressive Enterprises is talk of the week and many clients are concerned about the price impact on them as suppliers to a joint Trans-Tasman entity with so much market strength. May fuel further investment in Market Research to understand the impact.

Music

- I run a music school - A few people have left lessons this month citing they are in financial trouble. This has not happened for the last few years.

Packaging

- The NZ$ is hurting exports, resin prices are driving up raw materials, labour costs are increasing due to shortages and wage negotiations. The market is changing suppliers based on selling price and loyalty is hard to find. The industry is moving into shake down mode and rationalisation is commencing. Jobs will go. Natural market readjustment or poor economic leadership? Depending how much of that business goes to an overseas manufacturing base.

Pharmacy and Pharmaceutical Distribution

- Upturn in script numbers due to winter ills and usage of antibiotics - retail Pharmacy sluggish apart from cough cold medications

Real Estate – Commercial

- More commercial property selling for under 5% cap rates!! Warning bells

Real Estate - Residential

- I sell real estate in the Queenstown market and have been here for some time. Realistically in the residential market $500,000 to $700,000) there will be some quite significant price reductions.

Primarily, the market has got ahead of the ability of the purchaser to afford the property. However, those houses around the $400,000 and less will always sell quickly while those properties in the millions will find a buyer no matter what the economic market, providing of course they are premium properties.

- Residential development - sales remain steady, however they are harder to get and take longer.

- Land development, Wellington. Remains very upbeat and plenty of work throughout Wgtn and Kapiti.

- Some residential landlords have indicated they will be exiting the market due to the Government’s Housing strategy that has just been announced. Signalled intention to register all landlords, change the RTA to penalise landlords for housing defects, and implement legislation for property managers will make the market less attractive for some investors.

- Valuation. ppty market in Hamilton remains steady, minimum growth at its worst. shortages of listings for residential and especially lifestyle continues to keep prices paid up. Tender and Auction situations very fashionable.

- Real Estate - There are still no real signs of any downward trend to the price of houses. There are still plenty of willing buyers - an example was a home on the market for a week in the high 400’s receiving three offers within the week, and 28 groups of people to the first two Open Homes and sold at only $5000 below asking price! With this kind of interest winter prices are likely to hold and could even rise if demand continues to be greater than supply!

- Property investment Auckland - Some bargains to be had although you have to be quick. Panic selling makes good buying

Recruitment

- Term resourcing (short term, long term, and fixed term contracts and permanent placements) seems to be in an inverted market at the moment - at management level there is an over-supply of candidates, and at support staff level candidates are in very short supply.

Resource Management

- No significant changes apparent as yet in commercial or residential development proposals.

Retail

- Retail remains very competitive, price deflation and cost inflation squeezing margins.

- Fuel retail/convenience. trading strongly but staffing is a real issue.

Retail Building Trade

- Expecting drop in new houses in most areas but believe the South Island expecting to stay buoyant

Seafood

- Fishermen’s prices for lobsters continued to fluctuate, but the smaller sized lobster price fell quite substantially, dropping from $30-00 per kg. to about $22-00 per kg. Larger lobsters are bringing $31- 00 to $33-00 per kg. Many fishermen are now returning small lobsters to the sea, and bringing in only the larger fish, thus getting optimum dollar value for the kilo of quota. Finfish prices remain the same, and some boats are tied up due to the high running costs and poor prices.

- Seafood prices are OK, but exchange rate continues to erode most parts of the industry. A US$ rate around 0.65 is tolerable but NZ long term average (0.56) is where it needs to be to see the industry achieve acceptable returns on assets employed

Telecommunications

- No significant change to existing patterns foreseen for remainder of this year. Two dominant and strong cash flow players making it difficult for other telcos to make a profit. Telecommunications Commissioner has had a generally positive impact so far for all service providers and consumers.

Industry still price driven with technology innovation the secondary driver of market penetration.

Tourism

- Flat market with high dollar reducing spending power of visitors, reduced numbers from main markets.

Used Vehicle Sales

- Most difficult period in the last six years. Very low enquiry very high pressure on prices as a result.

Oversupply of product in the country and too many operators getting a decreasing percentage of the available business.

Vehicle Repair

- Retail vehicle repairs are patchy and vehicle numbers below May 04 and May 03. Trying to recoup rent increases and higher wages necessary to retain good staff is a daily challenge.

The BNZ Confidence Survey is run fortnightly. In every second Weekly Overview email sent to the 7,500 non-BNZ email addresses on our database respondents are asked to click on a URL which takes them to a survey site. Respondents are asked if they feel the economy will get Better, Worse or stay the Same over the next 12 months. Respondents may also make comments if they wish. Results are collated each Tuesday and released that night in this publication to media and WO readers.

This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. BNZ strongly recommends that readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither the Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever that may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication.

ENDS

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