Retail drives ASX 300 business conditions lower in Q2, with a weaker trend tipped for Q3.

Business conditions deteriorated across the economy in the second quarter of 2012, with declines recorded among firms in both the ASX 300 survey and the broader Quarterly Business Survey (QBS). ASX 300 firms recorded a net balance of 0 points in the June quarter, down from +3 points in our previous survey. The key contributor to this softening in conditions was the Retail sector – with a steep decline in retail conditions observed this quarter, combined with an increase in the sample size for the sector. Excluding Retail, conditions for the remainder of the ASX 300 improved marginally – from +2 points previously to +4 points in Q2. Larger firms continue to outperform the broader economy, with conditions edging lower in the QBS, recording a net balance of -4 points (on a non-seasonally adjusted basis), compared with -2 points in the March survey. Short-term expectations are divergent between the ASX 300 and the broader economy – with larger firms anticipating a further easing over the next 3 months, to -1 point, compared with +3 points in the QBS. This trend is driven by weaker expected conditions for ASX 300 Mining and Manufacturing. Expectations remain considerably stronger for ASX 300 firms in twelve months time. However, we note that the strength of forward expectations should always be viewed with some caution, due to a history of upside bias.

ASX 300 conditions weaken on negative profits and softer trading.

Trends in business conditions components diverged once again for ASX 300 firms. In Q2, a steep decline in our profitability measure (down to -9 points) was the key driver of weakening in business conditions, along with a decline in trading conditions (down to 0 points). In contrast, the employment measure improved to +10 points, which helped to offset weakness in the other measures. In the QBS, profit and trading conditions were similar to the ASX 300, although employment was considerably weaker.

ASX 300 confidence plunges, falling below the economy average.

Business confidence among ASX 300 firms plunged in our latest survey, recording a net balance of -9 points (down from +2 points in the March quarter). Unlike the quite divergent trends in conditions, confidence declined across the majority of industries in our latest survey, with Mining (MIN) and the Transport, Utilities & Communications (TUC) sector contributing the most to the decrease. In contrast, Retail and Recreational & Personal Services (REC) saw an improvement. In contrast, the decline in the QBS was more modest (albeit still quite negative), recording a net balance of -5 points, compared with 0 points in our previous survey. It is worth noting that this was the lowest reading since Q2 2009.

For further analysis download the full report.

• NAB Quarterly ASX 300 Business Survey – June 2012 (PDF 752KB)