Monthly Business Survey – September 2011

Conditions recover and businesses take comfort from better sales, a lower AUD and talk of interest rate cuts. Global uncertainty […]


Conditions recover and businesses take comfort from better sales, a lower AUD and talk of interest rate cuts. Global uncertainty still weighing on near-term activity indicators.

  •  Business conditions improved in September, after edging down over the previous two months, with the outcome suggesting that the Australian economy may be stabilising. However, there are still signs that a swift recovery may not ensue, with forward orders remaining weak and stocks contracting a little in the month. Nonetheless, capacity utilisation bounced back, to be above long-run average levels. Overall, the Survey’s activity readings, if maintained at current levels, are broadly consistent with underlying demand growth of around 3% in the December quarter (at an annualised rate) and GDP growth (ex coal) of 31⁄2%.
  •  Business confidence rebounded sharply in September, in line with better conditions and helped by the sharp depreciation of the AUD coupled with speculation that domestic interest rates will be reduced. Confidence rose across a majority of industries in the month, with a particularly strong rise in manufacturing implying that the lower AUD provided some relief.
  •  Conditions improved in all industries other than personal & recreational services – which was unchanged at strong levels. During September there were large gains in manufacturing and mining conditions. Despite this, conditions remain at depressed levels in manufacturing, construction, retail and wholesale.
  •  Labour costs growth eased a little in the month, after solid outcomes in the previous two months. Final product prices softened in September, and retail price growth was also weaker.

Implications for NAB forecasts:

  •  The survey results signal caution about the likelihood of monetary policy being loosened in the near term, although the odds of a rate cut are clearly higher following the slowing in global growth and financial market volatility. Our domestic forecasts are broadly unchanged.
  •  While near term activity remains soft, we see a medium-term rebound in the Australian economy, aided by mining exports and investment in resources and infrastructure. We expect GDP growth of 1.9% in 2011, rising to 4.1% in 2012. Core inflation (ex carbon pricing) is expected to remain around 21⁄2% over the next year but drift above 3% by mid-2013. As such, we expect the RBA will need to lift rates by late 2012. However, in the near term, the RBA is more dovish and there is now a 50/50 chance of a reduction in the cash rate in coming months if inflation remains subdued and domestic demand and the labour market weakens further.

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