March 11, 2014
Monthly Business Survey – February 2014
Recent recovery short lived? Business conditions back-pedalled sharply in February reversing around half post election gains. Confidence softened but still remains marginally above trend. Sales and employment fell markedly during the month, with the latter pointing to very weak labour
Recent recovery short lived? Business conditions back-pedalled sharply in February reversing around half post election gains. Confidence softened but still remains marginally above trend. Sales and employment fell markedly during the month, with the latter pointing to very weak labour market conditions (nearly all post election gains reversed) – and a jobless recovery. Manufacturing conditions deteriorated sharply, as did “bellwether” wholesaling conditions. Near-term outlook weaker with forward indicators softening. Inflation pressures well contained due to limited upstream pressures. Economic growth forecasts unchanged. Final RBA cut to occur in late 2014, with unemployment still expected to rise to 6½% by late 2014 and stay “higher for longer”.
- Business confidence eased slightly in the month, but remains marginally above trend levels, suggesting firms remain hopeful of a recovery despite mixed signals on business activity. With conditions looking volatile (and currently soft), it may be difficult for firms to maintain these levels of confidence. Confidence in wholesale improved significantly in the month, while transport & utilities deteriorated sharply (both are bellwether industries). Confidence is positive across all states.
- Business conditions dropped sharply from the near 3 year highs seen recently, re-establishing the divergence between conditions and confidence. As expected, the sharp turnaround in manufacturing recorded last month was largely unwound, and is now more consistent with the difficult environment that continues to face Australian manufacturers. The next largest deterioration came from wholesale (now very weak), followed by services industries. Forward orders and sales both softened, but remain positive, while employment conditions are sobering – having reversed nearly all post election gains and pointing to further labour market deterioration.
- Our wholesale leading indicator suggests much weaker underlying conditions, pointing to further below trend economic growth in the first quarter of 2014 of around 2¾% and continuing weakness into Q2.
- Inflation pressures were a little more subdued in the month due to lower input cost pressures. Soft labour costs growth is consistent with increasing slack in the labour market. Purchase costs also eased.
Implications for NAB forecasts (See latest Global and Australian Forecasts):
- Bad weather hits activity in America and UK in early 2014 but underlying global growth set to continue and headline forecasts barely changed. Shift toward greater contribution to growth from advanced economies progressing as expected. Too early to assess impact of the evolving Ukraine, but energy and metals are most exposed.
- Solid GDP outcome for Q4 obscures weakness in domestic demand. Latest ABS survey of capex intentions highlights the coming drag from mining investment (-21% over 2 years), with little offset from other industries. Forward indicators still in retreat and labour market weak. Our forecasts are unchanged: GDP growth for 2013/14 of 2.7% and 3.0% for 2014/15. Unemployment rate still to peak at 6½% in late 2014, but will remain elevated for longer. RBA expected to cut rates (25bp) for the last time in November. We do not expect a rate hike until late 2015.
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