Will the reporting season point to better days ahead?

The local reporting season is heating up, and we’re all hopeful it’ll suggest the long-awaited economic recovery is in sight.

It’s been a very challenging three years for many businesses.

The economy contracted for eight consecutive quarters (on a per capita basis) until late last year, and since then it’s been a mediocre recovery.

If you prefer to listen to a podcast episode on this topic: 

Unemployment has been ticking higher, net migration has slumped to well below average and the high cost of living is still weighing on consumers.

A turning point could be approaching despite those disappointing unemployment figures.

The labour market tends to be a lagging indicator, and it’s unreliable as a gauge of what’s ahead.

It is often strong heading into a recession, with unemployment only rising once the downturn has become entrenched and continuing to increase even after the recession ends.

There’s a similar lag coming out of a downturn.

When the recovery first takes hold, businesses first try to get more out of their existing workforce.

They’re cautious about taking on permanent staff until they see more evidence things are getting better.

House prices have gone sideways for two years, and residential construction activity expectations collapsed to the lowest level in a year in last month’s ANZ Business Outlook.

The economic recovery we were expecting in 2025 hasn’t materialised, but an improving backdrop is still on the horizon.

The Official Cash Rate (OCR) has fallen from 5.50 to 3.25 per cent, financial markets are picking another cut next week and there could be one more after that.

Mortgage rates have followed the OCR down, but there’s more support to come as households continue to roll off the higher rates of the past.

Homeowners are still paying 5.7 per cent (in aggregate) on their fixed mortgages, while the prevailing one- and two-year rates begin with a four.

Agriculture is another bright spot, with last season’s Fonterra payout the highest in history and this season tracking well too.

A stronger NZ dollar will be proving a minor headwind for back-to-back $10 payouts, but exporters can’t complain too much with the currency just under US$0.60 (the long-term average is about US$0.65).

After a very difficult reporting season in February, we’ll hopefully see more stability during these last few weeks of August.

We’ve got through the ‘confession season’ largely unscathed, aside from a handful of announcements from those in the more economically sensitive sectors like retail and construction.

This is the period just before the reporting season, when companies have seen their preliminary numbers and realised they won’t meet expectations.

They’re required to disclose that to the market, if they’ll be reasonably outside the margin of error.

August is also the first opportunity for many management teams to offer some initial guidance for the 2026 financial year.

Some might have better visibility than six or twelve months ago, and can give us a clearer picture of where things are headed.

There’ll be lots to watch over the coming fortnight, with many of our largest corporates under the microscope and some of the heavyweights set to announce results in the coming days.

Contact Energy, a2 Milk, Spark and Auckland Airport are all up next week, as are Freightways and Fletcher Building.

Those last two are always interesting, as they ride the ups and downs of the economy more than others.

Plenty more will follow over the balance of the month, and hopefully the mood of management will have improved.

There’s an election next year, and with the last four being held in September or October it might be barely a year away.

Stagnant economies, sliding house prices, persistent cost of living increases and rising unemployment are the kinds of things that get governments voted out.

The coming few weeks will reveal whether our listed corporate sector is ready to embrace recovery, or if we’ll be left cautiously waiting for another six months or more.

For under-pressure management teams, frustrated investors and nervous politicians alike, the stakes are rising after an extended period of underperformance.

Market Insights enewsletter

Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.

Subscribe Now