Business confidence lifts; Export sales at 13-year high

NAB Business Survey; Credit & debit card lending; Weekly Consumer Confidence

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  Business confidence rose in July

  Business conditions and confidence: The NAB business confidence index rose 7.8 points to +11.0 points in July – a 10-month high. The business conditions index improved from +2.5 points to +8.2 points – a four year high. The survey was conducted from July 25 to July 31.

• Exports up: The index of exporters’ sales rose from -1.3 points to a 13-year high of +9.7 points in July (highest since June 2001).
• Consumer confidence falls: The weekly ANZ/Roy Morgan consumer confidence rating fell by 5.7 per cent in the week to July 10. The confidence rating is up 9.3 per cent on the lows recorded for the week to May 25.
• The average credit card balance 2.10 (0.1 per cent) to $3,220.7 in June. The average credit card balance was down 0.7 per cent on a year ago.
• House prices: The ABS measure of home prices rose by 1.8 per cent in the June quarter to be up 10.1 per cent over the past year. The average price of a residential home (houses and units) across Australia is $554,800.

What does it all mean?

• Over the past couple of months the business sector has been more upbeat than consumers on the outlook for the Aussie economy. And the latest results suggest a further improvement in cautious optimism, particularly when it comes to the trading environment. In July, business conditions lifted to the best levels in four years while confidence levels are holding at 10-month highs.
• Interestingly the business confidence readings have not been as volatile as what has been noted by consumers. If anything the business sector shrugged of the negative budget headlines and focussed on the big picture and it seems to be paying dividends. The lift across the sub-indices is particularly encouraging. Profitability has improved and is now holding at the best levels in over four years, while the forward order book has strengthened. In addition the index of exporters’ sales lifted to the best level in 13 years. Not only has the Australian dollar retreated from highs but miners are pumping out product from new and expanded mines. This is the part of the cycle that miners and other related businesses love – the part where investments start to pay off in export sales and increased profits.
• The ongoing lift in conditions is likely to be better news for labour market conditions. As profitability improves we would expect business to increase hours worked and hire additional labour.
• An improvement in labour market conditions would certainly support consumer confidence. The weekly Roy Morgan Consumer Confidence index fell by almost 6 per cent last week, largely as a result of the headline grabbing news of the 6.4 per cent unemployment rate last week – a 12-year high.
• We would expect consumer confidence to rebound in coming months. As the strength 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.
• 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. However it is unlikely that interest rate will be lift anytime this year.
• The Bureau of Statistics has estimated that there were 9,366,800 homes in Australia as at June 2014. Based on the estimated population of 23,533,712 at the time, that equates to 2.512 people per dwelling. Since September 2011 the estimated number of persons per home has lifted from 2.492 people to 2.512 people. If the number of persons per home hadn’t risen, then it is estimated that an extra 78,000 dwellings would have been required.
• If the statistics are correct then Australians have been making greater use of our large dwellings and thus reducing some of the need for extra dwellings

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index rose from +7.8 points to +11.0 points in July – a 10-month high. Thebusiness conditions index improved from +2.5 points to +8.2 points – a four year high.
• The index of trading conditions strengthened from +7.0 points to +13.7 points; employment strengthenedfrom -2.6 points to +0.1 points; profitability strengthened from +3.3 points to +10.2 points; forward ordersimproved from +0.6 points to +5.3 points.
• Inflationary pressures were largely flat in July. The monthly reading of labour costs rose at a 1.0 per cent quarterly rate in July after a 0.7 per cent rise in June. Purchase costs rose at a 0.5 per cent quarterly rate in July, after a 0.4 per cent rise in June. Final product prices rose by 0.2 per cent after a similar rise in June.Retail prices lifted 0.8 per cent in July, after a similar result in June.
• Capacity utilisation lifted from 79.1 to 81.0 in July, in line with the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit eased from around 65 per cent in June to around 60 per cent in July.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating fell by 5.7 per cent in the week to July 10 after rising by 1 per cent in the previous week. The confidence rating is up 9.3 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.

Credit & debit card lending:

• Figures released from the Reserve Bank show that the average credit card balance rose by just $2.10 (0.1 per cent) to $3,220.7 in June. The average credit card balance was down 0.7 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 1.7 per cent.
• Of credit cards attracting interest charges, the average outstanding balance rose by $26.40 in June to $2,245.40. The average balance accruing interest is down by 1.2 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 4.5 per cent.
• The number of credit cards are up just 0.7 per cent on a year ago.
• The average credit card limit rose by $12.90 to $9,287.60 in June. The average credit card limit rose by 2.2 per cent in the year to June.
• The average number of transactions on credit cards in June was 10.8, similar to May. In smoothed terms the average number of credit card transactions hit a record high of 10.68 in May. The average purchase on a credit card was $135.13 in smoothed terms (average for the year to June).
• The average number of transactions on debit cards in June was 7.6, down from 8.0 in May. In smoothed terms the average number of debit card transactions was 7.82 in June – a record high. The average purchase on a debit card is $55.32.
• 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 Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
• Business confidence and conditions are certainly a lot better than where they were a year ago. The ongoing lift in profitability will be key in ensuring that a further lift in employment takes place. 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 recent lift in the unemployment rate and underlying 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.
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

• Business confidence and conditions are certainly a lot better than where they were a year ago. The ongoing lift in profitability will be key in ensuring that a further lift in employment takes place. 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 recent lift in the unemployment rate and underlying Aussie dollar continues to hamper rebalancing efforts across the economy.