Monthly Business Survey – August 2013

Confidence rises everywhere and surges in mining, construction and finance/ business/ property. This appears to reflect expectations of political change & more certainty about future political frameworks. Against that, business conditions and capacity utilisation remained poor.

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Confidence rises everywhere and surges in mining, construction and finance/ business/ property. This appears to reflect expectations of political change & more certainty about future political frameworks. Against that, business conditions and capacity utilisation remained poor. Retail conditions approaching GFC lows. Labour market down markedly & forward indicators still weak, with business struggling to pass on higher import costs from a lower AUD. Global & local economic and financial forecasts broadly unchanged.

  • Business confidence strengthened considerably in August, with the index rising to its highest level since May 2011. The cash rate cut in August and a lower AUD may have helped sentiment but it appears more important were political factors – including an expectation of political change and more certainty about the future policy framework (this survey was conducted prior to the Federal election on 7 September). Confidence lifted in all industries and states in August. That said confidence is now only back to average levels and much will depend on whether the current bounce is maintained or erodes away in the face of poor business conditions.
  • Business conditions edged marginally higher in August but fundamentally were “unchanged at soggy levels”. Weakness was very apparent in retail trend conditions, which recorded the weakest reading in almost five years. Conditions were also especially weak in mining, manufacturing, construction and wholesale, while recreation & personal services was the only sector to report positive conditions. Forward indicators edged up a touch but remain at subdued levels. Particularly concerning was a slump in employment conditions (weakest since May 2009), painting a worrying outlook for the labour market. Capacity utilisation remained subdued.
  • The survey implies underlying demand growth and GDP (6-monthly annualised) of around 2½-2¾% in the September quarter. Our wholesale leading indicator implies no improvement in near-term activity.
  • Labour costs growth softened in August, after surging higher in July following the implementation of a higher national minium wage. Prices rose only marginally in August (as did retail prices); when combined with moderate growth in purchase costs, it appears that margins are being further compressed.

Implications for NAB forecasts (See latest Global and Australian Forecasts report also released today):

  • Recent business surveys show a solid and synchronised lift in business confidence across the advanced economies whose annualised quarterly industrial growth now exceeds that of the emerging economies. Big emerging market economies have been hit by financial market volatility as money moves back to the US. Growth expectations revised down for India, emerging Asia and Brazil as their monetary policy will have to be tighter than if there had been a more gradual market adjustment to the Fed’s planned moves.
  • June quarter national accounts confirm that the Australian economy grew below trend in the first half of this year. GDP forecasts broadly unchanged this month: GDP growth to soften to 2.3% in 2013 before gradually rising to 2.5% in 2014 and 2.9% in 2015. Unemployment to exceed 6% by end 2013 and reach 6¾% by end 2014. Consistent with soft activity outlook, core CPI expected to edge down to 2.3% by end 2013, lifting modestly to 2.6% by end 2014; rising unemployment to keep the brakes on inflation in 2015. We think there is a need for another 25 bp rate cut (probably Nov) to help industries squeezed by the mining investment slowdown.

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