Bond markets have been supported by some market-friendly data and while Fed speakers were again mixed, it was the more dovish remarks that captured attention.
NAB Monthly Business Survey – July 2014
Business confidence again surprised on the upside, supported by better business conditions (largely reflecting sales and profits) and a surge in retailer confidence. Firms still unfazed about the Budget (for now). Conditions jumped to a four year high
Business confidence again surprised on the upside, supported by better business conditions (largely reflecting sales and profits) and a surge in retailer confidence. Firms still unfazed about the Budget (for now). Conditions jumped to a four year high, but major improvements were narrowly based – with construction a standout. Employment improved modestly, but remains subdued. Stronger sales saw higher utilisation rates and positive capex. Forward orders suggest the better start to Q3 may continue. NAB forecasts softer in 2014/15, stronger on 2015/16. Unemployment rate on slightly higher track. Rates still on hold till late 2015 but risks of a cut rising.
- Business confidence improved again in the month, reverting back to post-election highs. Firms still appear unfazed by the Federal government’s ‘tough budget’, possibly taking comfort in the bounce back in consumer confidence. A solid jump in business conditions and better forward orders is supporting the relatively optimistic position. Stronger sales and profits are driving the trend, but the recovery continues to be relatively jobless with the employment index seeing more moderate gains (remaining at subdued levels). Higher capacity utilisation rates suggest that the improvement is relatively capital intensive.
- Business conditions rose in the month to their highest level since early-2010 – implying a strong start to Q3 demand. That said, much of the improvement is narrowly based. Construction surged again, propped up by high levels of building approvals that will drive construction activity for many months. Wholesale (a bellwether industry) also improved, but remains slightly negative – and are somewhat contrary to the kick up in forward orders. Changes in conditions varied across industries, as do the levels – construction and service industries are the stand out (mining and retail are weakest). In contrast to very strong readings for sales and profits, business is still very reluctant to employ.
- Our wholesale leading indicator improved, but still suggests weak underlying conditions and below trend economic growth in the second quarter of 2014 – with moderate near term growth in prospect for demand.
- Firms report moderate inflation pressures, although input cost prices accelerated. Both purchasing costs inflation and labour cost pressures lifted, but expected to be temporary. Retail inflation also accelerated.
Implications for NAB forecasts (See latest Global & Australian Forecasts):
- Global growth remains moderate but monthly trade and industrial growth continues to slow. Economic conditions mixed between regions with solid upturns in the UK and US, weakness in Japan and signs of slowing in the Euro-zone. Emerging market economies still driving most global growth with rapid Chinese growth, brighter signs in India but weakness in Latin America. Signs of improvement domestically with conditions up and confidence even better, but Q2 looking softer.
Weak retail trade and net exports point to soft GDP growth in Q2. Employment continues to drift. Partial indicators better but headwinds remain from high AUD, falling mining investment and fiscal restraint. Australian forecasts revised down in 2014/15 (3.1%, was 3.3%), up in 2015/16 (3.2%, was 3.0%). Official unemployment rate to peak at 6½% by end 2014 (was 6¼%) reflecting weaker growth and changes to ABS measurement (which probably added 0.2 points to unemployment). Cash rate on hold until late 2015 but more risk of a cut.
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