In addition:

• Tourist arrivals fell but departures rose in September
• Tourist arrivals fell for the sixth time in nine months, dropping 4.1 per cent in seasonally adjusted terms in September
• Trade surplus narrows, with Australia’s trade surplus easing by $389 million to $2,564 million in September.
• Over the past 18 months trade surpluses have totalled $34.2 billion.
• Exports fell by 2.5 per cent while imports fell by 1.3 per cent in the month.

What does it all mean?
The latest business confidence figures are hardly encouraging. Yes confidence improved but it was from a sustained level of pessimism and remain well short of long-term averages. In addition the key forward looking indicators were decidedly weaker, trading conditions eased, profitability worsened, while forward orders contracted for the 15th time in 16 months. It is clear that at present Aussie businesses are remaining on the sidelines, uncertain about the outlook and remaining non-committal to investment plans.

Importantly the latest survey occurred in late October, before the interest rate cut by the Reserve Bank on Melbourne Cup day. And as such it is likely that business confidence levels should receive a boost in ensuing months. Although it is unlikely that one rate cut alone can have the profound effect of turning around the lacklustre business survey readings.

More likely if the Reserve Bank wanted to provide a strong degree of support to the economy a further rate cut would do just that. And it certainly has the scope to do so, especially given that the latest business survey has confirmed that overall inflationary pressures are mild and even non-existent in the retail space. CommSec expects a further rate cut to take place in February however if a solution to the European debt crisis is not forthcoming it may result in policy makers cutting rates earlier to support the domestic economy.

Aussies continue to flock overseas in record numbers. Over the past year a record 7.64 million short-term departures were recorded. And while this doesn’t strictly translate to the number of people trekking offshore, it can’t be far off, suggesting that one in three Aussies went abroad for business or pleasure over the year. If retailers are wondering where all their customers have gone, they only need to visit the international terminal.

Australian consumers are devoting more of their budget to holidays and travel and this trend should continue while ever the Aussie dollar remains perched above parity against the greenback. Tourism-reliant businesses will no doubt continue to experience challenging operating conditions but they will need to focus on tapping the opportunities presented by rising income levels through Asia. Almost 700,000 Chinese tourists (including Hong Kong) visited Australia over the past year, up almost 17 per cent over the year.

What is the importance of the economic data?
The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

The Australian Bureau of Statistics releases data on overseas arrivals and departures is produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

What are the implications for interest rates and investors?
The latest NAB business survey certainly doesn’t look overly encouraging. However the recent interest rate cut should provide some degree of stimulus. Importantly it will take a lift in consumer confidence and resulting pickup in consumer spending to support the business sector.
Inflationary pressures are well and truly contained and if it was required the Reserve Bank certainly has the scope to cut interest rates and support activity levels over coming months. The global environment particularly Europe will be a key factor in deciding the timing of the next rate cut.

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