Monthly Business Survey – March 2014

Business conditions lifted slightly in March, but remained at relatively subdued levels, weighing on business optimism. Confidence still positive but softened to its lowest post-election level to be below long-run trend.

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Business conditions lifted slightly in March, but remained at relatively subdued levels, weighing on business optimism. Confidence still positive but softened to its lowest post-election level to be below long-run trend. Sales fell slightly in March and employment, though better, still points to soft labour market conditions. Most industries saw some improvement in conditions, especially mining, but transport and “bellwether” wholesale weakened significantly. Near-term outlook still soft according to forward indicators. Inflation outlook well contained due to limited upstream pressures, and retail prices fell. Economic growth forecasts unchanged with unemployment still expected to rise to 6½% by late 2014 and one more rate cut probable in late 2014.

  • Business confidence was pared back in the month to its lowest post-election level, which is also below its long-run average. It appears as though firms are responding to the ongoing sluggishness in business activity, which has not quite reflected the exuberance of firms in past months. The stubbornly high AUD, uncertainty over the global economy and the potential for significant ‘belt tightening’ in the upcoming budget, could all have contributed as well. Mining continues to be the least confident industry.
  • Business conditions rose only slightly in the month and are still pointing to a sluggish recovery in business activity. Nevertheless, most industries recorded an improvement in business conditions in the month, with the exception of transport & utilities and wholesale. Conditions facing wholesalers deteriorated heavily in March and are by far the weakest of all the industries covered in the survey – a concern given its characteristics as a bellwether industry. Recreation & personal services continue to enjoy the highest level of business conditions. Sales eased in the month, while forward orders and employment both remain soft
  • Our wholesale leading indicator suggests much weaker underlying conditions, pointing to further below trend economic growth in the first quarter of 2014 of around 2½% and continuing weakness into Q2.
  • Inflation pressures softened again in the month due to lower input cost pressures. In particular, purchase cost inflation eased in the month, resulting in a sharp fall in retail prices. Soft labour costs growth is consistent with increasing slack in the labour market.

Implications for NAB forecasts (See latest Global and Australian Forecasts):

  • Global economy growing around trend with advanced economies providing more of global output expansion as China slows. Inflation low in big advanced economies, underpinning low interest rates, but price pressures in many emerging economies (excluding China). Forecasts broadly unchanged with global growth 3.5% in 2014 and 3.8% in 2015.
  • Australian forecasts unchanged with rate cut still expected in late 2014 and unemployment to edge up, peaking at 6½% in late 2014. Dwelling investment and exports likely to strengthen, but expect tight Budget to add to mining headwinds. GDP to grow at 2.7% in 2013/14 and 3.0% in 2014/15.

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