Monthly Business Survey – March 2012

Confidence and conditions grind higher but with little jobs growth. Forward indicators marginally improve but remain subdued. Multi speed economy […]


Confidence and conditions grind higher but with little jobs growth. Forward indicators marginally improve but remain subdued. Multi speed economy still to the fore – with non mining edging up a touch. Domestic forecasts edge lower with unemployment up. Rates view unchanged.

  • Businesses appeared slightly more confident about near-term activity in March than in February, although a degree of caution still seems to be inhibiting hiring and investment decisions. Positive data out of the US, which helped push the Australian dollar lower, and reduced Euro banking concerns probably aided sentiment.
  • Business conditions continued to edge up in March, albeit marginally. Trading conditions are relatively stronger but employment remains flat to subdued. This month’s Survey suggests economic momentum is fundamentally going sideways – but may just be starting to edge up. Forward indicators of demand, however, remain lacklustre. Credit demand fell back to low levels in March, following a pick up in February (consistent with official RBA data). Overall, the survey implies underlying demand and GDP growth of around 31⁄4 -31⁄2% in Q1 2012.
  • Conditions improved sharply in mining and finance/ business/ property in March, but deteriorated reasonably heavily in wholesale and recreation & personal services. While mining conditions continued to outperform all other industries, the modest pickup in conditions in February and March appears to have been more broadly based. Conditions strengthened sharply in WA for a second consecutive month, while Queensland was the only state to report weaker conditions.
  • Labour costs growth was broadly unchanged in March, while purchase costs and product prices growth both eased to fairly subdued levels. Retail prices weakened and appear to have fallen slightly in Q1.

Implications for NAB forecasts:

  • Global financial and commodity markets have been buoyed by the European Central Bank’s LTRO operations that added substantial liquidity to the banking system, greatly reducing market volatility and risk aversion. The softening that was evident in both business confidence and activity measures through the latter half of last year seems to have eased. Activity remains weak in the Euro-zone and UK, and several big emerging market economies have experienced a substantial slowing from late 2011. While China may be currently slowing, prospects for 2012 remain favourable – as is the US outlook. We have left our global forecasts unchanged – 31⁄4% this year and 33⁄4% in 2013.
  • Australian near-term outlook revised down marginally, consistent with a continuing sluggish survey, a deteriorating housing sector (a concern that needs to be watched) and surprisingly weak export performance in early 2012. While we expect the latter to be temporary (Chinese New Year, weather, coal strikes) and there is hope that the economy may be marginally gathering momentum, the reality is that the current soft patch will see a slight deterioration in near-term unemployment prospects – we now expect a peak of around 51⁄2% mid-year before declining back to around 5% by end 2013. Mining projects expected to bolster activity later in 2012 and beyond. Our GDP forecasts are now a touch below 3% (was 31⁄4%) in 2012 and 33⁄4% (unchanged) in 2013.
  • RBA is signalling a rate cut in May provided inflation is low. We have not changed our rate views and with our Q1 core CPI forecast of around 1⁄2% – we expect a rate cut. We then expect the RBA to be on hold through 2012. Our core inflation forecasts are unchanged – with core (ex carbon tax) 2.2% in 2011/12 and 2.5% in 2012/13.

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