• Business confidence dropped back again in the first quarter of 2015, falling even further below the long run average level. This is consistent with a pull back in confidence in the February monthly survey, although this was completely unwound in March. Conditions were also softer in Q1, but this is in contrast to the monthly survey which showed an improvement late in the quarter. Despite better results in the month of March, firms expectations in the quarterly survey for future activity generally eased.
• There was nothing in the Q1 Survey to suggest a divergence from the ‘patchwork’ economy of recent years. Service sectors and to some extent construction are continuing to outperform in terms of conditions, although confidence appears to be more varied. Weakness in commodity prices is very evident in the responses of mining firms, while industries like manufacturing and wholesale appear to have received very little support from a more favourable AUD.
• The AUD fell prior to the March survey period then broadly stabilised. Despite the depreciation, a higher proportion of firms reported they were adversely affected by the level of the AUD. It is not clear whether this suggests much more depreciation is needed, or if there is some other underlying driver at play? Nevertheless, retail, transport & utilities and wholesale are the only industries that are more negatively affected by the AUD than 6 months prior – when the AUD was much higher than current levels.
• Forward orders were unchanged in the quarter, although the level of orders remains subdued. Other leading indicators in the NAB Survey generally softened. Firms’ expectations for conditions in 3 and 12 months time both eased back, while the ‘bellwether’ wholesale conditions deteriorated as well. Encouragingly, capacity utilisation picked up, suggesting spare capacity is becoming less of a constraint on non-mining investment, although capex expectations for the next 12 months eased a little (unchanged in rounded terms). The most recent ABS Capital Expenditure Survey suggests non-mining investment could continue to contract along with the ‘cliff’ in mining capex.
• Product price inflation was subdued at an annualised rate of 0.6% (0.2% in the quarter), reflecting both softer labour cost growth and purchase cost inflation. Retail prices accelerated in the survey (in contrast to relatively steady inflation reported by the ABS).

For further details, please download the full report.

• Quarterly Business Survey – March 2015 (PDF, 1MB)