Quarterly Business Survey – June 2014

Business confidence eased a touch, but remains at relatively resilient levels post-budget. Business conditions improved marginally as underperforming industries improve. Forward indicators point to further modest improvement over coming months.

By

Business confidence eased a touch, but remains at relatively resilient levels post-budget. Business conditions improved marginally as underperforming industries improve. Forward indicators point to further modest improvement over coming months, but the economy will remain sub trend with soft labour demand. Medium term expectations for conditions flat. Capex expectations up somewhat. The survey measures of price pressures suggest lower inflation – especially retail prices. Special question on the impact of currency shows retailers and wholesalers benefiting from strengthening AUD.

  • Business confidence eased in Q2, the second consecutive fall from the election driven high of 2013. The monthly survey also showed some deterioration recently, but lifted unexpectedly in June. Conditions edged up a point – reducing the gap with confidence further – but are still at levels consistent with moderate (and uneven) economic growth.
  • Most states experienced a drop in sentiment, while business outcomes were mixed across industries. Low interest rates are helping to strengthen interest sensitive sectors of the economy (particularly residential property). Indeed property and construction now the most confident going forward.
  • The recent strength in the AUD is having a mixed impact on industries. Clearly import competing and trade exposed sectors see the currency as a headwind. But retailers and wholesalers now appear to be seeing benefits from AUD strength, via reduced purchase costs. (See our special survey question.)
  • Business conditions, in level terms, remain soft outside of the services sector. Recreation & personal services and finance/ property/ business services report the most positive business conditions, while mining continues to be very weak.
  • Forward orders were little changed in the quarter, suggesting slightly softer domestic demand growth in Q2, consistent with capacity utilisation rates that are still below long-run averages. There was no change in 12 month expected outcomes for business conditions.
  • Business investment intentions (next 12 months) rose in the June quarter, unwinding the previous decline. Intentions are approaching levels consistent with improved non-mining capex, although this isn’t supported by the most recent ABS Capital Expenditure Survey.
  • Product price inflation remained subdued in the quarter – an annualised rate of 0.7% (0.2% in the quarter), reflecting weaker purchase cost growth and subdued labour costs. Retail prices sharply lower.

Implications for NAB forecasts:

  • Forecasts unchanged since latest Global and Australian Forecasts (released 8 July).

For further analysis download the full report.