Business conditions improve in June, but activity still weak: NAB survey

Business conditions improved during June, but activity still remains soft as businesses continue to fear the effects of new taxes and uncertainty in the eurozone.

While the RBA has delivered some relief through interest rate cuts, and government stimulus payments have also provided a boost to retail, the survey finds more businesses are still worried about new taxes on carbon and mining super profits.

The survey found confidence went backwards at one point in June to -3, while conditions improved from -4 to -1. The index for trading rose into positive territory, from -1 to 3, and profitability also improved tom -6 to -1.

Employment remained afloat, but forward orders dropped from -4 to -8, their lowest level in three years, and exports also took a hit from -2 to -3.

Conditions improved in all industries during June, except in wholesale and transport and utilities. The biggest improvement was in construction, although the industry is working off a low base after taking a dive in May.

Construction also received a boost when building approvals rose sharply during June, according to the latest figures from the Bureau of Statistics.

Conditions in retail and mining were also strong, but they were weakest in manufacturing and wholesale. The strongest industries were mining, recreation and personal services, and transport and utilities.

Confidence, however, is a different story. The mining and manufacturing industries understandably took a hit, but it’s improved among finance, business and property. Once again, NAB attributes the results to the diverging economy and a structural shift.

“The persistent divergence in industry conditions indicates that the Australian economy is undergoing a structural transformation towards mining and service-based industries, and away from traditional manufacturing and discretionary retailing.”

There are some good points – labour costs fell to a more moderate 0.7%, suggesting pressures remained contained. Also, price inflation remained unchanged at 0.2%, and purchase cost pressures fell to 0.4%.

Employment conditions have remained strong, although they fell heavily in transport utilities down 25 points “suggesting some transporters may be paring back their labour force in response to weakness in other sectors, such as retail”.

Construction and manufacturing also recorded falls, but conditions in mining rose 20 points.

Overall, however, NAB said that provided global politicians can “avoid the worst”, then growth should remain slightly below trend for the next year, “but with lots of uncertainty and market volatility on the way”.

 

 

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