Business confidence up but employment growth sluggish, NAB survey reveals

Business confidence and conditions improved during March but jobs growth is still slow, according to the latest figures from the NAB monthly business survey.

The results come alongside the bank’s predictions that the Reserve Bank will cut interest rates next month, with inflation still low, although it warns the RBA is expected to then remain on the sidelines through the rest of the year.

“Business conditions continued to edge up in March, albeit marginally,” economist Alan Noble said in the survey.

Conditions in the mining and finance, business and property industries increased in March, but the wholesale and recreation and personal services industries recorded declines.

Forward indicators also remain weak. Credit demand fell to low levels in March, after a February upgrade, with the survey implying underlying demand and gross domestic product growth of about 3.25-3.5% in the first quarter of 2012.

“While mining conditions continued to outperform all other industries, the modest pickup in conditions in February and March appears to have been more broadly based,” Noble said.

“Labour costs growth was broadly unchanged in March, while purchased costs and product prices growth both eased to fairly subdued levels. Retail prices weakened and appear to have fallen slightly in Q1.”

As a result, employment prospects for the short-term need to be adjusted.

“We now expect a peak of around 5.5% mid-year before declining back to around 5% by end 2013,” the survey found.

Conditions rose one point to four points, while confidence rose one point to three. Employment rose one point to just one, while forward orders declined. Trading conditions remained flat at eight, while the index of profitability increased from one point to three.

The uptick in conditions reflects an upgrade in profitability and employment conditions. While pointing to a modest recovery, Noble said they also show that conditions “remain divergent across industries and states”.

“Furthermore, despite generally improving in March, forward indicators remain fairly lacklustre suggesting that activity will continue to be soft.”

The positive boost in confidence follows some improvement in Europe’s economic outlook, along with positive economic data from the United States.

“However, this may have been partly offset by intensifying concerns of a more pronounced slowing in the emerging economies.”

Conditions were strongest in mining, transport and utilities, while they were weakest in retail, construction, manufacturing and wholesale.

Exports actually picked up in March, with the index rising to zero points from negative three. “The pick-up in export activity was broad-based across all industries, with the exception of recreation and personal services,” the survey found.


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