Business outlook improves; Petrol set to rise

NAB Business Survey; Weekly Petrol

• Petrol prices drop: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 4.0 cents per litre to 151.3 cents a litre in the week to July 6. The national average petrol price has traded between 149-158 cents over 2014.
• Discounting cycle: Petrol prices in Sydney, Melbourne, Brisbane, and Adelaide peaked well over two weeks ago and are at present at the low point in the cycle. Prices should lift over the coming days and peak towards the end of this week.
• Business conditions and confidence: The NAB business confidence index rose from +7.3 points to +7.9 points in June. The business conditions index rose from -0.8 points to +2.3 points. The survey was conducted from June 24 to June 30.
• Consumer confidence stabilises: The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.3 per cent in the week to July 6 but was still up by 1.8 per cent over the month and up 5.8 per cent on the lows recorded in late May.

The NAB business survey has components that track broader economic variables such as employment, exports and consumer spending. Businesses can benchmark their experiences against industry and state results. The petrol figures and consumer sentiment data have implications for retailers, especially petrol marketing groups.

What does it all mean?

• Over the past couple of months the business sector has been a lot more upbeat than consumers on the outlook and now conditions are also showing signs of improving. This is in stark contrast to the slide that was noted in consumer confidence in the past couple of months. Business confidence has actually edged up slightly over the past month. And now with the Budget retreating from media headlines, greater focus can be placed on Australia’s good economic circumstances.
• Even consumer confidence is showing signs of having bottomed out. And as the lift in house prices and share markets come to the fore, more Aussies are likely to realise that the economy is in solid shape and interest rates are going nowhere. And more confident consumers should lead to better operating conditions for businesses.
• Encouragingly inflationary pressures are benign with businesses actually noting that labour costs and purchase costs eased in June.
• Overall, the Australian Reserve Bank is in a similar position to the US Federal Reserve. There is no pressing need at present to be tightening monetary policy. But the Australian economy is forming a solid base for future growth and therefore a base for more “normal” interest rates.
• The national petrol price has lost relevance as an indicator of petrol price trends due to the vagaries of the discounting cycle. One week the price is up 4-5 cents, the next week it’s down 4-5 cents. In just the past three weeks petrol price has swung through a 15-17 cent range across Sydney, Brisbane and Melbourne.
• The good news for motorists is that the national average fuel price fell to the low $1.50s a litre last week. The slide in the national price was largely due to the discounting cycle. In Sydney, Melbourne, Brisbane and Adelaide, petrol prices are currently at the low point in the cycle. In fact petrol is trading near wholesale prices at Sydney, Melbourne and Adelaide pumps. Prices are likely to drift higher with the peak in the cycle likely to be later this week.
• Global oil prices are edging lower, reflecting the recent improvement in the geo-political situation in the Middle East. Last week, Libyan export capacity lifted by around 500,000 barrels per day as rebels blockading eastern oil ports agreed to reopen the remaining two terminals. No doubt the Middle East political situation and the volatility of the Australian dollar will be driving factors that determine pump prices in coming months.

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index rose from +7.3 points to +7.9 points in June. The business conditions index improved from -0.8 points to +2.3 points.
• The index of trading conditions strengthened from +1.5 points to +6.6 points; employment weakened from -0.1 points to -2.6 points; profitability strengthened from -2.6 points to +3.1 points; forward orders improved from 0.0 points to +0.4 points.
• Inflationary pressures were largely flat in June. The monthly reading of labour costs rose at a 0.6 per cent quarterly rate in June after a 0.7 per cent rise in May. Purchase costs rose at a 0.3 per cent quarterly rate in June, after a 0.4 per cent rise in May. Final product prices rose by 0.1 per cent after a 0.1 per cent rise in May. Retail prices lifted 0.2 per cent in June, after a flat result in May.
• Capacity utilisation eased from 80.2 to 79.3 in June, below the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit rose from around 45 per cent in May to around 65 per cent in June.

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.0 cents a litre to 151.3 c/l in the week to July 6. The metropolitan price fell by 5.5 c/l to 149.1 c/l, while the regional average price fell by 0.6 cents per litre to 156.0 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 8.2 cents to 147.5 c/l), Melbourne (down by 5.7 cents to 147.0 c/l), Brisbane (down by 7.4 cents to 149.4 c/l), Adelaide (down by 5.8 cents to 145.9 c/l), Perth (up by 1.2 cents to 154.0 c/l), Darwin (unchanged at 173.0 c/l), Canberra (unchanged at 157.2 c/l) and Hobart (up by 0.2 cents to 160.9 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands 143.0 c/l, down around 1.6 cents over the week. Petrol is trading near wholesale prices at Sydney, Melbourne and Adelaide pumps.
• Last week the key Singapore gasoline price fell by US$1.60 or 1.2 per cent to US$127 a barrel. Yesterday the Singapore gasoline price fell further to a 3-week low of US$125.10 a barrel. In Australian dollar terms the Singapore gasoline price fell by 66c a barrel or 0.5 per cent last week to $123.19 a barrel or 85.29 cents a litre.
• Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, and Adelaide peaked well over two weeks ago and are at present at the low point in the cycle. Prices should lift over the coming days and peak towards the end of this week.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating fell by 0.3 per cent in the week to July 6 after falling 0.3 per cent in the previous week and lifting by 2.4 per cent in the week to June 22. Over the month, confidence rose by 1.8 per cent. The confidence rating is up 5.8 per cent on the lows recorded for the week to May 25.
• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes.
• 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.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• Business confidence and conditions are good without being great. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines. Exports and housing construction are the key drivers of the Australian economy.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates. Inflation remains well contained, while the higher Aussie dollar continues to hamper rebalancing efforts across the economy.

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.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for interest rates and investors?

• Business confidence and conditions are good without being great. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines. Exports and housing construction are the key drivers of the Australian economy.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates. Inflation remains well contained, while the higher Aussie dollar continues to hamper rebalancing efforts across the economy.