New Zealand businesses are feeling a touch less optimistic about the months ahead, but their reports of what's actually happening right now are looking brighter. That's the takeaway from ANZ's latest business confidence survey, released this month.
The bank's August survey showed business confidence slipped by 2 points to 54. That's still a positive reading—meaning more firms are optimistic than pessimistic—but it marks a small step back from July. At the same time, firms' expectations for their own activity in the year ahead eased slightly, to 48 from 49.
Yet the survey's 'past activity' gauge—which asks firms how business has been recently—jumped to 16 from 10 in July. ANZ linked that improvement to stronger momentum in the services sector, suggesting that while businesses may be cautious about the future, the present isn't as weak as some feared.
What's behind the mixed signals?
Business confidence surveys are watched closely because they offer a real-time read on how companies are feeling about the economy. The forward-looking questions—like expected activity—tend to reflect sentiment and can be swayed by headlines, interest rates, and global events. The backward-looking questions, like past activity, are more grounded in actual sales and orders.
So when confidence dips but past activity improves, it often means the economy is performing better than business owners expected. That's a pattern that has shown up in other countries too. For instance, UK business confidence recently hit a five-month high as price pressures eased, while Sweden's economy beat forecasts alongside rising confidence.
In New Zealand's case, the services sector—which includes everything from retail and hospitality to finance and healthcare—appears to be driving the improvement in recent activity. That's a positive sign because services make up a large chunk of the economy.
Why it matters for investors
For everyday investors, this survey is a useful gauge of the economic backdrop. When businesses are confident, they tend to hire, invest, and spend more, which supports corporate earnings and, ultimately, share prices. When confidence falls, companies may pull back, which can weigh on growth.
The fact that confidence remains positive—even after the dip—suggests the economy is not in freefall. But the easing in forward-looking expectations is a reminder that growth is likely to remain modest. That's consistent with other recent data: New Zealand consumer confidence also slipped in August, with big-ticket purchases cooling, and similar sentiment dips have been seen elsewhere.
For investors, the key takeaway is that the economy may be stabilizing, but it's not booming. That suggests a cautious approach to cyclical stocks—companies that do well when the economy is strong—might be wise. Defensive sectors, like utilities and consumer staples, could offer more stability if growth remains sluggish.
What to watch next
ANZ's survey is just one piece of the puzzle. Investors will be watching for other indicators, such as employment data, inflation figures, and the Reserve Bank of New Zealand's policy decisions. If past activity continues to improve, it could signal that the economy is gaining momentum, which might lead to a more upbeat outlook.
On the other hand, if confidence keeps sliding, it could be a warning sign that the recent improvement is temporary. The next few months will be telling.
For now, the mixed signals suggest a 'steady as she goes' picture. The economy isn't collapsing, but it's not surging either. For investors, that means staying diversified and focusing on companies with solid fundamentals rather than betting on a rapid recovery.
As always, it's important to remember that surveys like this are just one data point. They can be volatile and are often revised. But when combined with other indicators, they help paint a picture of where the economy is headed—and that's valuable for anyone with money in the market.
