Monthly Business Survey – June 2012

Business conditions improve slightly but overall activity remains soft; forward orders and employment conditions imply weak near-term demand. Confidence falls […]


Business conditions improve slightly but overall activity remains soft; forward orders and employment conditions imply weak near-term demand. Confidence falls marginally, implying little relief from RBA rate cuts; European uncertainty and new taxes may be weighing on sentiment. Government handouts provide some respite to consumer dependant sectors but benefits may be short-lived – time will tell.

  • Business confidence edged lower in June, consolidating a sharp fall in sentiment in May. Impact of June RBA rate cut possibly outweighed by European economic instability (resolved, for time being, at end of survey period) and potential implications of minerals resource rent tax (MRRT) and carbon tax: mining and manufacturing (but not transport & utilities) confidence declined sharply.
  • Business conditions improved modestly in June, driven by a pick up in trading conditions and profitability, although the rise was not enough to unwind the deterioration in activity in the previous month. Employment conditions remained weak. Stronger conditions fairly broad-based across industries, but not across states; the divergence between Victoria and WA has become increasingly pronounced. Forward orders sank to lowest level in three years, driven largely by a heavy fall in manufacturing orders. However, capacity utilisation and stocks did improve a touch, albeit from low levels. Overall, the survey implies that underlying demand growth in the June quarter may slow to around 23⁄4%, while GDP growth may slow to around 21⁄4-21⁄2%.
  • The sharp fall in conditions in construction last month was only partly unwound in June and residential building activity weak. Conditions also picked up modestly in retail, with recent rate cuts as well as government payments probably having an effect. Mining conditions were the strongest, although they were fairly soft compared to levels earlier this year, with weakness in global demand having a direct impact on export volumes and prices.
  • Despite the lure of lower interest rates, demand for credit weakened sharply in June, with the proportion of respondents reporting a need for credit falling to 37% in June, from 53% in May. Labour costs growth ticked down in June, consistent with the weakness in employment conditions, as did purchase costs growth. Product prices growth unchanged at a low level, implying fairly subdued economy wide inflation. Retail prices fell marginally, suggesting further discounting.

Implications for NAB forecasts

  • Global confidence, again eroded by uncertainty over Euro-zone outlook, and financial market volatility starting to affect activity with softer trading conditions in big advanced economies and slower pace of emerging economy growth. Provided politicians can avoid the worst the outlook is still for global growth to be slightly below trend next year – but with lots of uncertainty and market volatility on the way.
  • Australian outlook unchanged: GDP forecasts 3.1% in 2012 and 3.3% in 2013. Restructuring likely to maintain upward bias on unemployment in near term and reinforce consumer caution. One more rate cut needed in H2 (possible September) to offset budget tightening. Underlying inflation at 2.3% in 2012 and 2.7% in 2013 ex carbon tax. Rising mining investment and lower interest rates carry upside risks towards end 2013.

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