Monthly Business Survey – January 2013

Business confidence hangs on to gains made last month on reduced global fears. Business conditions improve a touch, but still poor. Signs that previously stronger industries are being dragged down by weakness elsewhere. Capacity utilisation now lowest since 2001 and forward orders remain …

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Business confidence hangs on to gains made last month on reduced global fears. Business conditions improve a touch but are still poor. Signs that previously stronger industries are being dragged down by weakness elsewhere. Capacity utilisation now lowest since 2001 and forward orders remain weak. Floods in north-east Australia do not appear to have had major impacts on activity. GDP forecasts unchanged – rate cuts still coming but marginally delayed.

  • Business confidence was broadly steady in January, after recovering strongly in December from very poor levels. That recovery mainly reflects external factors, including the rally in global equity markets and generally better activity inChina, as well as recent RBA cuts. However confidence remains below long-run average levels.
  • In January, business conditions improved somewhat but the net balance statistic remained negative – implying continuing below-trend growth. While profitability and trading conditions posted solid gains in the month, employment conditions weakened considerably. Forward orders were little changed at poor levels suggesting little upward momentum. A similar story is told by our wholesale based leading indicator (see page 3). Capacity utilisation fell further and is now at its lowest level since 2001. Also credit demand remains near record lows.
  • Business conditions were generally better across interest sensitive industries in January, but fell heavily in mining. That, however, returns mining to levels reported in the Quarterly Business Survey for December (and hence it is hard to separate out any impact of theQueenslandfloods). Recent surveys have highlighted the gradual deterioration in conditions in recreation & personal services and transport & utilities (previous non-mining strong performers). This trend continued in January. It may well be that continuing weakness elsewhere is now spreading.
  • Overall, the survey implies underlying demand growth in the March quarter of around 2¾% – a slight improvement on expectations for the December quarter but still below trend.
  • Labour costs growth softened significantly in January – in line with a sharp deterioration in employment conditions – suggesting that wage pressures are unlikely to fuel near-term prices growth. Consistent with this, final product price inflation was flat and purchase costs growth eased to a subdued level. Retail prices declined implying further discounting in response to still very poor conditions in this industry.

Implications for NAB forecasts (See latest Global and Australian Forecasts released on 29 January 2013):

  • Little change to latest global and Australian forecasts for activity. However, we remain more bearish than the RBA on the near-term outlook; we see GDP growth of 2.0% over 2013 (RBA 2-3%) and 3.1% over 2014 (RBA 2¼-3¼%).
  • We still see the need for the RBA to cut by 75 bps this year – but have marginally delayed the timing. RBA appears now focused on non-mining recovery and business investment. With the labour market still holding up and the RBA still looking for the impact of past cuts, we have delayed the next cut to May (but capex data critical). We have tentatively put additional rate cuts in June and November.

For further analysis download the full report.