Monthly Business Survey – September 2013

Animal spirits lift again. Confidence surges to its highest level in 3½ years. Business conditions, however, still subdued – with employment poor. Signs of better conditions in finance/ business/ property and construction.

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Animal spirits lift again. Confidence surges to its highest level in 3½ years. Business conditions, however, still subdued – with employment poor. Signs of better conditions in finance/ business/ property and construction. Forward indicators – including orders, stocks and capacity utilisation – point to future improvement. But our wholesale leading indicator less certain. Firms manage to increase prices modestly but margins still under pressure. Forecasts unchanged except cash rate cut delayed to February.

  • Business confidence was boosted again in September, with the index rising to its highest level since March 2010, to be 17 points higher than its most recent trough in July. The federal election result appears to have helped confidence further but the gains were uneven. Low borrowing rates, rising consumer sentiment and a lower dollar may have also helped – especially in recreation & personal services and retail. Also better news from China probably helped sentiment in mining. Transport & utilities sentiment however has weakened. By region sentiment rose sharply in WA, Victoria and NSW.
  • Business conditions were moderately up in September but, at -4 points, remained relatively low. Finance/ business/ property and construction showed big gains possibly in line with the housing market. Activity remained worryingly weak in mining and manufacturing, while conditions in transport & utilities have recently turned down to very poor levels. Finance/ business/ property and recreation & personal services were the best performing sectors in the month. Some hope for better activity to come, with orders, stocks and capacity utilisation rising to fresh highs for the year. Nonetheless, employment conditions remain subdued, painting a soft outlook for the labour market.
  • The survey implies underlying demand growth (6-monthly annualised) of around 2¾-3% in Q3 and GDP growth of around 2½%. Our wholesale leading indicator implies no improvement in near-term activity.
  • Labour and purchase costs growth continued to soften in September. While prices rose modestly in September (as did retail prices), when combined with relatively stronger cost pressures, margins have probably tightened.

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

  • Although an upturn is still underway, the pace of industrial growth and business sentiment in some big advanced economies has stopped improving. Emerging market trends have been mixed with China showing signs of stabilising, India remaining weak and a very modest improvement across emerging Asia and Latin America. Global growth still expected to be 3% this year and 3½% in 2014 and 2015. US political uncertainties over its government shut-down and debt ceiling are not assumed to have a marked impact on US GDP growth.
  • GDP forecasts unchanged this month: 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 this soft outlook, core CPI to edge down to 2.2% by end 2013, lifting modestly to 2.5% by end 2014. RBA appears less dovish on the back of better confidence and improving asset prices. But AUD still elevated and labour market continues to weaken. We still see a need for another 25 bp rate cut – probably in Feb (was Nov).

For further analysis download the full report.

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