The brakes have firmly tightened on activity in November; business conditions very weak in construction, retail, manufacturing and wholesale. Signs of trouble ahead with confidence slumping to lowest level since April 2009, with little hint of a pre-Christmas revival. Activity forecasts broadly unchanged following release of Q3 GDP. Weakness continues into Q4 – path for interest rates now appears even lower, with one more rate cut likely before the middle of next year.

• Business conditions were unchanged at a very poor level in November, after falling to the weakest level since May 2009 in the previous month. The subdued outcome was fairly broad-based across industries, implying recent rate reductions by the RBA have not yet materialised into stronger demand.
• This month’s activity outcome reflected a deterioration in profitability, which was partly offset by a slight pick up in employment conditions – trading conditions were unchanged. Conditions rebounded in wholesale and manufacturing (but remained very subdued) and went sharply backwards in transport & utilities. Six out of eight sectors reported negative conditions.
• Pessimism is the word this month, with business confidence the weakest since April 2009. Confidence did not rise in any sector and fell especially hard in manufacturing. Firms may be concerned about a soft global economy, fiscal tightening, a soft labour market and high AUD.
• Also providing little support for a near-term rebound is the weakness in indicators of future demand. Forward orders, capacity utilisation and stocks all fell to their lowest or equal lowest levels in around 3½ years. Overall, the survey implies a significant slowing in underlying demand and GDP growth in the December quarter, both easing to around 2¼% – clearly below trend.
• Labour costs growth increased a touch in November, but remained relatively soft following three consecutive monthly declines. Purchase costs increased modestly, while product prices grew only marginally, suggesting more pressure on margins. Retail price growth was particularly weak in the month.

Implications for NAB forecasts (See latest Global & Australian forecasts report also released today):

• Although interest rates are historically low in the advanced economies and central banks have stepped up their liquidity injections, their pace of economic growth is still very weak. There is no indication the business environment is about to improve and risks in theUSand Euro-zone are depressing confidence. It looks as if growth in the big emerging economies is stabilising. Global growth to remain a sub-trend 3% this year and next.
• Australian GDP growth eased further in Q3, up 0.5%. Outlook broadly unchanged this month; GDP forecasts 2.5% in 2012-13 (was 2.3%) and 2.8% in 2013-14 (was 3.0%). A still elevated AUD, fiscal tightening and very weak confidence expected to weigh on near-term activity. Frictional pressures will keep the unemployment rate elevated. Inflation unlikely to be a barrier to more monetary policy easing in the first half of 2013 (May but February possible). Core inflation (inc. carbon) 2.8% in 2012-13 and 2.9% in 2013-12.

For further analysis download the full report.

• Monthly Business Survey – November 2012 ( PDF 296KB)