Monthly Business Survey – July 2012

Australia’s monthly survey of the current performance of the non-farm business sector, based on a survey of around 350 small […]


Australia’s monthly survey of the current performance of the non-farm business sector, based on a survey of around 350 small to large sized companies. Includes a monthly update of the global and Australian economic outlook.

Business conditions worsen in the face of poor trading and profits, with weakness particularly evident in retail and wholesale – as government compensation payments unwind. But overall confidence improved significantly, on more supportive comments from European policy makers and the lagged impact of recent RBA rate cuts. Forward indicators of demand remain soft but economy still around trend. Near term forecasts up on stronger history. Rates on hold (line ball call) provided forecasts are met.

  •  Business confidence surged higher in July, after deteriorating steadily over the previous two months. It appears recent talks in Europe have provided some relief to financial markets, which is resonating through to an improved outlook for global demand. Sentiment is also likely to have picked up given carbon tax ‘hurdle’ has been passed.
  •  Business conditions weakened in July, to be trending at the lowest level in three years. The deterioration in activity reflected marked falls in the profitability and trading conditions indices, partly offset by a modest pick up in employment conditions. Conditions weakened across a majority of industries, with particularly sharp declines in retail and wholesale – the industries that benefited most from the government compensation payments. Conditions fell sharply in WA but are still at strong levels, while Victoria deteriorated again.
  •  Forward orders, capacity utilisation and stocks all remain lacklustre. Overall, the survey suggests underlying demand growth in the June quarter slowed to around 31⁄2%, with GDP growth around 21⁄2%. To the extent that July Survey is indicative of Q3 outcomes, a further weakening in growth is implied.
  •  RBA rate cuts over the past ten months do not appear to have fundamentally increased businesses’ appetite for credit. Labour costs growth spiked up in July, probably reflecting the impact of Fair Work Australia’s national minimum wage decision (effective 1 July 2012). However, product prices growth remained fairly subdued while purchase costs growth increased notably, implying tighter margins. Retail prices growth was broadly flat and, combined with solid purchase and labour costs growth, imply further discounting.

Implications for NAB forecasts:

  •  Global economic conditions vary significantly across regions with recession in Western Europe, slowdowns in China, India and Brazil and only modest growth in the US. Market hopes for international policy easing have seen equities rise and risk appetites recover. Monetary policy easing in big emerging economies and the passing of recession in the UK and Euro-zone should see growth pick-up from 3% this year to 3.4% in 2013.
  •  Australian near-term economic outlook revised up: GDP forecasts 3.6% in 2012 (RBA 33⁄4%) but medium term down to 2.9% in 2013 (RBA 23⁄4-31⁄4%). That reflects stronger history but near term weakening. Mining investment outlook strong despite softer commodity prices. Restructuring likely to maintain only moderate upward bias on near-term unemployment. Core inflation up to around 23⁄4% ex carbon (but temporarily above 3% including carbon). Economy may no longer require a near-term rate cut. But this is a line ball call and depends on forecasts being achieved. We see rates on hold until mid 2013, and then up moderately.

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