October 9, 2012
Monthly Business Survey – September 2012
Business confidence recovers modestly but still down beat – especially mining. Business conditions disappoint – with struggling retail and wholesale falling significantly. Forward orders noticeably weaker and capacity utilisation trending down - indicative of weakening demand.
Australia’s monthly survey of the current performance of the non-farm business sector, based on a survey of around 350 small to large sized companies. Includes a monthly update of the global and Australian economic outlook.
Business confidence recovers modestly but still down beat – especially mining. Business conditions disappoint – with struggling retail and wholesale falling significantly. Forward orders noticeably weaker and capacity utilisation trending down – indicative of weakening demand. Labour market softish and marginally down. Forecasts edged down and, if inflation remains subdued, door opens for Nov rate cut – with risk of another in 2013.
- Business conditions slipped in September, to be well below long-run average levels. This appears to be related to the impact of the high AUD, tighter fiscal (both state and federal) policy and weaker commodity prices on the back of global (and Chinese) economic uncertainties.
- Businesses were slightly more upbeat in September, though levels of overall business confidence remain down beat – particularly in mining and manufacturing. Announcements of further policy stimulus in major international economies and speculation of more RBA rate cuts may have helped.
- The softening in activity was driven by broad-based declines in trading conditions, profitability and, to a lesser extent, employment conditions. Conditions deteriorated heavily in wholesale, retail and transport & utilities, and improved modestly in construction. Conditions fell back heavily in Victoria and SA.
- As well as much weaker activity readings (business conditions, stocks and capacity utilisation) in the month, indicators of future demand such as forward orders fell heavily in September. Capital expenditure also continued to weaken and credit demand softened. Overall, the survey implies that underlying demand and GDP growth will be around 2¾-3% in Q3 2012 – slightly below trend. But if the September monthly readings were repeated in coming months, the slowdown implied would be much more pronounced.
- Labour costs growth eased in September, to be close to ‘normal’. Product prices growth was again subdued, while purchase costs pressures softened modestly. Retail prices growth increased a touch, but remains low.
Implications for NAB forecasts (See latest Global & Australian forecasts report also released today):
- Conditions appear to have stabilised in the big advanced economies, while trade and industrial indicators still point to a broad-based slowing in the emerging economies. Central bank policy stimulus in the US, Euro-zone andJapanhas lifted sentiment in financial and commodity markets and reduced fears of Euro-zone collapse and further slowing in theUS. Global growth expected to rise from 3% in 2012 to a still sub-trend 3¼% in 2013.
- The Australian economy is passing through a soft patch. GDP forecasts slightly weaker, especially in out years: 3.3% in 2012 (was 3.4%), 2.5% in 2013 (was 2.8%) and 3.2% in 2014 (was 3.6%). Key drivers of slower activity include: falling income growth from weaker commodity prices, a high AUD and fiscal tightening (both at the federal and state levels). Core CPI expected to stay within RBA target range; 2.4% in 2012 and 2.9% in 2013. We expect to see one more RBA rate cut in November, provided core inflation remains subdued (a CPI of 0.7% or lower), with the possibility of another in early 2013. RBA to run accommodative policy in 2013 (3% or lower) to help offset changing nature of mining boom. But will be sensitive to asset prices and fiscal indiscipline.
For further details download the attached documents.