Monthly Business Survey – November 2011

Conditions improve slightly in November and are consistent with an economy growing around trend. Services sectors (ex. finance) and retail […]


Conditions improve slightly in November and are consistent with an economy growing around trend. Services sectors (ex. finance) and retail doing better. Confidence overall relatively stable – despite European concerns. GDP revised up on mining & consumer strength.

  • Business conditions edged higher in November, after softening a little in the previous month, and are consistent with an economy growing at around trend. With the exception of trading conditions, all of the survey indicators improved in the month, with increases in forward orders, stocks, employment and capacity utilisation suggestive of improved economic activity. The survey’s activity readings over the December quarter to date are broadly consistent with underlying demand growth of around 31⁄2-33⁄4% and GDP (ex. coal) growth of around 31⁄4-31⁄2% in the December quarter (6-monthly annualised rate).
  • Business confidence was unchanged in November, remaining below its long-term average, despite concerns about the European debt situation.
  • Business conditions were mixed by industry. The services sectors (outside finance) all reported better activity in the month. Mining, transport & utilities and retail conditions were also noticeably stronger. In contrast, conditions deteriorated heavily in construction in November, while manufacturing conditions also deteriorated in the month; conditions were worryingly weak in both sectors.
  • Labour cost growth ticked up in November, consistent with an improvement in employment conditions in the month. Final product prices rose in the month but retail prices remained broadly flat.

Implications for NAB forecasts:

  • The continuing financial crisis in the Euro-zone is seriously damaging European business confidence and affecting economic activity. As a result, we are now expecting a deeper recession in that region with spill-over effects around the world (particularly to the UK, where our forecasts have also been lowered). The big emerging market economies are also slowing as earlier policy tightening takes effect in China, India and Brazil. Overall, we have cut our global growth forecast to 31⁄4% for 2012, a below- trend performance crucially reliant on the contributions from the US, China and India.
  • Australian national accounts data heralded the start of the long-awaited mining investment boom, while consumption growth remains firm; we see these components (in particular) supporting further growth in the Australian economy in the medium term. Our GDP forecasts have been strengthened to reflect stronger consumption and mining investment growth. We are generally more bullish on near-term growth than the Commonwealth Treasury and RBA’s latest forecasts; we see year-average growth of 2.1% this year, around 41⁄2% in 2012. While we still see downside risks to near term inflation (2% by mid 2012), we expect above target inflation to re-emerge in 2013, consistent with our stronger growth profile.

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