Quarterly business survey – March quarter 2012

The most comprehensive survey of current performance as well as near-term and medium-term expectations of the non-farm business sector, based […]


The most comprehensive survey of current performance as well as near-term and medium-term expectations of the non-farm business sector, based on a survey of around 1,000 small to large sized companies.

Business conditions edge higher but lack of jobs growth likely to keep near-term activity fairly soft. Confidence slips back and remains below trend. Forward indicators remain lacklustre implying soft near-term demand – and probably weakening outside of mining.

  • Business conditions edged higher in the March quarter, consolidating a return to around trend growth in activity in the previous quarter. Despite the recent improvement in conditions, which largely reflected strength in trading conditions rather than employment, the Survey still suggests of an economy that is fundamentally going sideways. Measures of near-term demand (including forward orders and capacity utilisation) remained lacklustre overall, also indicating that near-term activity should remain soft.
  • The divide between the stronger mining and serviced-based sectors and the weaker consumer and trade dependant sectors remained a marked feature of the economy in early 2012. Conditions were strongest in transport & utilities, mining and recreation & personal services, while they were weakest in manufacturing, retail and construction. Consistent with the relative strength in mining, conditions were strong in WA, while they were broadly flat in the other mainland states.
  • Business confidence deteriorated a little in the quarter, partly unwinding an improvement in sentiment in the previous quarter. General gyrations in the global economy appear to be keeping overall sentiment below-average levels; the loss of confidence since the end of 2011 may have in part reflected heightened concerns about a hard landing in China and the persistently high AUD.
  • Business investment intentions (next 12 months) generally eased outside of mining, suggesting that non-mining business investment growth will ease over the year ahead. Short-term employment conditions remain consistent with little near-term employment growth. Longer-term employment conditions softened in the quarter and are still below pre-GFC levels. Lack of demand is expected to remain the most constraining factor on profitability over the year ahead, while concerns about interest rates, wage costs, capital capacity and suitable labour were low.
  • Product price inflation softened in the March quarter, recording annualised growth of just 0.5%. Retail price inflation remains essentially flat. Labour and purchase costs growth eased a touch.

Implications for NAB forecasts:

  • No change to latest Global and Australian Forecasts (released 10 April) for activity. At its April Board meeting, the RBA signaled a rate cut in May provided inflation remained low in the March quarter (CPI released 24 April). We expect core CPI to be around ½% in the March quarter, which we see as consistent with a rate cut in May. We then expect the RBA to be on hold through 2012.

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