Quarterly Business Survey – December 2013

Business confidence in the December quarter was at its highest in more than 2½ years. Business conditions lifted to their highest level in more than 12 months suggesting activity is starting to catch up – albeit still below trend.

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Business confidence in the December quarter was at its highest in more than 2½ years. Business conditions lifted to their highest level in more than 12 months suggesting activity is starting to catch up – albeit still below trend. Forward indicators remain soft, including forward orders, keeping labour demand weak. The survey measures of price pressures remain muted. Special question on the impact of currency now showing increased pressures on transport but less on wholesale.

  • Business confidence lifted to its highest level in more than 2½ years, although monthly measures show a levelling off late in the quarter. Conditions are now starting to catch up with confidence, but remain soft.
  • Better sentiment was felt across most states and industries (excluding retail). The post-election ‘honeymoon’ continued well into the December quarter, helping to prop up confidence, although a better housing sector (predominately driven by investors), higher asset prices and a lower AUD and interest rates are all contributing. However, with the AUD stabilising at elevated levels, our special question shows that the impact on competitiveness is affecting transport and manufacturing (particularly firms in Victoria and Tasmania), while wholesale and retail benefit from reduced inflationary input cost pressures.
  • Business conditions rose to their highest level in more than a year. The Survey points to six-month annualised GDP growth in the December quarter of around 3% (ie. below trend). While forward orders and capacity utilisation lifted a little in the quarter, they remain at subdued levels, and combined with weak employment conditions, suggest little improvement in near-term demand.
  • Business conditions rose across all industries in Q4, but most remain quite weak. Services are a stand out with recreation & personal services, and finance/ property/ business services recording a positive net balance. Conditions are weakest in wholesale – a bellwether for the economy – followed by construction and mining. Conditions rose across all states, butVictoriais the only state were the index is positive.
  • Business investment intentions (next 12 months) rose unexpectedly in the December quarter to around their long-run average. Mining intentions kept falling (to -19 points) but is under-weighted in the survey. Near term employment expectations remain soft, consistent with NAB’s view for a rising unemployment rate.
  • Product price inflation lifted a touch in the quarter, recording annualised inflation of 0.7% (0.2% in the quarter). Retail price inflation in the Survey was unchanged in the quarter in contrast to the unexpected pick up in underlying CPI inflation for Q4. Labour and purchase costs growth remain modest – with margin pressures easing.

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