Business confidence subdued
The NAB business confidence index weakened from +3.1 points to +0.7 points in February and the business conditions index weakened from minus 1.8 points to minus 2.7 points. The survey was conducted from February 25 to March 5.
What does it all mean?
The surprisingly soft business survey isn’t of immediate concern. Consumers are spending a little more but businesses aren’t yet seeing a huge impact in their operations.
The improvement in the employment index is encouraging but orders, profitability and trading conditions are still subdued. The other encouraging aspect was a lift in the proportion of businesses seeking finance, although follow-on improvement is required in coming months.
What do the figures show?
National Australia Bank Business Survey:
- The NAB business confidence index weakened from a six-month high of +3.1 points to +0.7 points in February and the business conditions index weakened from a five-month high of minus 1.8 points to minus 2.7 points.
- The index of trading conditions improved from +0.3 points to +0.4 points; employment improved from minus 6.0 points to minus 3.1 points; profitability weakened from minus 1.7 points to minus 5.4 points; and forward orders weakened from minus 4.3 points to minus 10.8 points and marked the 23rd straight month that forward orders have contracted.
- In terms of business conditions, NAB noted: “Movements in business conditions were fairly mixed across industries in February. Solid improvements were reported in mining, recreation & personal services (both up 7 points) and retail (up 6), while conditions moderated modestly in construction (down 6 points) and transport & utilities (down 4). This survey highlights an apparent improvement in the main consumer dependant sectors of the economy – retail and recreation & personal services – which appear to be gaining strength on the back of the recent surge in equity prices and an improving housing market: i.e. through wealth effects. The improvement in mining conditions may in part reflect the relatively high price of iron ore over the past month or so, which should be particularly supportive for mines in WA, although cyclone Rusty, which shut down major terminals at Port Hedland towards the end of February, is likely to have kept activity levels contained. Overall, conditions were most subdued in construction (-14) and manufacturing (-12), while they were strongest in recreation & personal services (+8) and finance/ business/ property (+4).”
- Inflationary pressures are still restrained. The monthly reading of labour costs rose at a 0.8 per cent quarterly rate in February after a 0.3 per cent rise in January but the result remains historically low. Prices rose 0.1 per cent after being flat the previous two months. Retail prices were flat in February after falling at a 0.2 per cent quarterly rate in January. Purchase costs rose at a 0.6 per cent quarterly rate in February, up from 0.2 per cent in January that had been the lowest reading since September 2010.
- Capacity utilisation lifted from 79.3 per cent in January to a four-month high of 79.8 per cent in February, but below the long-term average of 81.2 per cent.
- The proportion of firms reporting that they did not require credit improved from 71 per cent in January to 50 per cent in February.
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.
What are the implications for interest rates and investors?
The latest business survey provides nothing ‘fresh’ for the Reserve Bank. That is, there is nothing to prompt changes in interest rates in any direction. If rates are to move in the next few months clearly it would be down, not up. But the Reserve Bank will want to give the economy more time to respond to previous rate cuts.