Business confidence has plummeted to its worst level since just after the global financial crisis, as SMEs continue to suffer under poor economic conditions in the lead-up to what is now expected to be a miserable Christmas.
The latest NAB Monthly Business Survey, which was taken just before the latest interest rate cut, has found businesses aren’t just suffering under poor conditions – they’re just as scared about another international financial catastrophe.
NAB economist Alexandra Knight told SmartCompany the business community is facing a group of worries that continues to swell.
“Businesses are still worried about the mining sector, we saw iron ore prices come off a bit during the period the survey was taken, and also more concern about the fiscal cliff in the United States.”
“It’s not as bad as during the global financial crisis, but it’s comparable.”
The NAB survey argues the “brakes have firmly tightened on activity in November”. While conditions remained unchanged – at -5 on the survey’s confidence measure – confidence has taken a drastic plunge from negative one, to negative nine.
“Pessimism is the word this month,” Knight said. “Confidence did not rise in any sector and fell especially hard in manufacturing.”
Several of the individual indicators have taken a hit. Profitability has fallen, along with expectations for employment, while forward orders have taken a nasty hit from -6 to -11.
“Businesses are just worried at the moment,” says Knight.
“They’re concerned about the fiscal tightening that’s in the year ahead, while labour conditions are looking soft as well.”
“The weak forward looking indicators are making businesses think twice about their planned activities.”
Business conditions deteriorated in transport and utilities, even after four consecutive months of positive results. Conditions also fell in mining, retail, recreation and personal services.
However, wholesale, manufacturing and construction recorded improvements.
The big hit was in confidence – it fell across all industries, except construction where conditions still remain subdued. Manufacturing recorded the largest decline.
“There are no signs of near-term optimism,” NAB noted, “with all industries expecting activity to deteriorate further”.
“Confidence remained weakest in mining, reflecting concerns about the outlook for the Chinese economy and therefore commodities demand.”
“Recent Reserve Bank rate cuts appear to have done little to lift confidence.”
This is a similar finding to a recent Westpac consumer sentiment result, which found that Australians did not respond to rate cuts in the way economists had expected.
The forward orders index fell to its lowest level in 2009, and was most prominent in mining, while capital expenditure rose four points to zero. Most of the activity was found in transport and utilities.
Employment conditions actually improved across most industries, and profitability increased in wholesale and manufacturing, although it declined in transport, and recreation and personal services.
The forward orders index is perhaps the most disappointing, with the indicator down six points to -11. It’s the weakest outcome since May 2009, and “consistent with the general weakness in trading conditions over the past three years”.
Knight says while there should be some impact from the latest interest rate cut, “in the very near term, it won’t look much different”.
“It’s not really indicating any joy at Christmas.”