Business sector spending higher than income

New Zealand’s non-financial corporate sector recorded negative savings of $2.5 billion in the quarter ending March 2024, according to data released today by Stats NZ.

Negative saving means spending is greater than income and is financed by previous savings or new borrowing. The non-financial sector has experienced negative saving in four of the last five quarters. This contrasts with positive saving in most quarters of the previous six years.

The sector’s gross operating surplus fell to $16.0 billion in the March 2024 quarter. This is the fifth consecutive decline since the last quarter of 2022, when the gross operating surplus was $18.9 billion.

“The decline in the operating surplus reflects lower profitability in the corporate sector,” said Paul Pascoe, senior manager for institutional sectors at the national accounts.

“Over the past year, production of goods and services has slowed while labor costs have continued to rise.”

Interest paid increased by another 2.2 percent to $7.2 billion in the March 2024 quarter. Interest expense is 28 percent of income paid in the last quarter and 14 percent in the September 2021 quarter, when interest paid reached a series low ($3.0 billion).

Companies have taken on more debt and reduced their inventories to finance the gap between revenue and expenses. Last year saw three of the four highest quarters in the series for new loans, with $18.4 billion in new loans in the year ending March 2024. During the same period, net inventories fell by $5.2 billion, reflecting companies using or selling inventory without completely replacing it.

These statistics apply to all non-financial corporations and may not reflect the specific circumstances of any individual corporation.