July 9, 2013
Monthly Business Survey – June 2013
Business conditions and capacity utilisation slump to a four year low. Confidence a little better but still below trend. Conditions very bad in retail, mining and manufacturing, despite low interest rates and falling AUD, though signs a little better for exports.
Business conditions and capacity utilisation slump to a four year low. Confidence a little better but still below trend. Conditions very bad in retail, mining and manufacturing, despite low interest rates and falling AUD, though signs a little better for exports. Plenty of spare capacity with little indication of being utilised in the near term; forward orders and employment still very poor.
- The June survey paints a worrying picture of the Australian economy; business conditions slumped in June to their lowest level since May 2009. Weaker trading conditions and profitability combined with still poor employment conditions drove business conditions lower, with each of these indicators remaining well below average levels. Conditions deteriorated heavily in mining, retail and manufacturing (despite a tumbling AUD). Weak forward indicators – including forward orders, stocks, capacity utilisation and employment conditions – remain concerning and suggest little improvement in near-term demand.
- Business confidence lifted marginally in June, but remained lacklustre. The falling AUD appears to have done little to lift spirits, with concerns about global economic conditions likely to be weighing. Overall weakness in domestic economy also likely to be worrying firms. Federal government reshuffle occurred during the final days of survey period, but the survey provides little indication about how sentiment may have been affected.
- Overall, the survey implies underlying demand growth and GDP (6-monthly annualised) of around 2½% in the June quarter. Our wholesale leading indicator suggests a modest improvement in near-term activity, at best.
- Labour costs growth softened in June, consistent with still weak employment conditions. Prices fell for a second consecutive month (but retail rose), while costs grew modestly.
Implications for NAB forecasts (See latest Global and Australian Forecasts report also released today):
- Equity and currency market volatility reflects uncertainties over the pace at which the Fed might alter US monetary policy, Chinese authorities might clamp down on shadow banking and the potential impact of the Bank of Japan’s move to greater monetary easing. Recent industrial and trade data plus business survey readings show slightly better activity outcomes in big advanced economies but growth in India and Brazil remains disappointing and there are growing concerns that China might be unable to manage a smooth transition to slower more consumer-led economic growth. After two years of growth of around 3%, we still expect global growth to move back to trend in 2014.
- Domestic weakness implied by this survey, along with softness in China, a weaker terms of trade and financial market volatility, encourages us to bring our next expected rate cut forward to August (previously November), assuming no downside surprises from unemployment or inflation. We expect the bias to easing to continue beyond August. Our inflation forecasts are unchanged at 2.4% in mid-2013 and 2.5% in mid-2014, well within the RBA target band. We have left GDP growth unchanged at 2.3% in 2013 and 2.8% in 2014 but with greater downside risk to the outlook. The unemployment rate is still expected to exceed 6% by the end of this year.
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