Business conditions have fallen to their weakest level in more than three years, according to NAB’s Monthly Business Survey, which suggests a February interest rate cut is “on the cards”.
The survey shows business conditions fell two points to -5 index points in October, recording their weakest outcome since May 2009.
The outcome reflects a significant weakening of conditions in wholesale, manufacturing and construction, which all reported “worryingly weak” activity levels in the month, NAB said.
Mining conditions also weakened to their lowest level since early 2011, when the Queensland floods caused serious disruptions to coal mine production.
“While conditions improved reasonably well in retail, they remained poor overall,” NAB said.
“Transport and utilities – the strongest performing industry at present – was the only other industry to report a pickup in conditions in October.”
NAB points out the business conditions index is now 10 points below its medium-term average of five index points, and six points below the long-run average of one point.
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A look at the states reveals conditions deteriorated notably in Queensland and NSW in October, with these states among the poorest performing overall.
In fact, conditions in Queensland are the weakest since last year’s floods. Meanwhile, conditions in NSW are at their weakest level since March 2009.
In contrast, conditions in South Australia and Victoria improved, although activity in Victoria remains lacklustre, NAB said. Trend conditions were only slightly better in Tasmania.
The survey shows business confidence also faltered in October, down one point to -1 index point. The pessimism was particularly apparent in the mining and construction sectors.
The Reserve Bank’s decision to lower the cash rate at its October meeting failed to improved sentiment, NAB said, with firms instead likely to be focusing on the reasons for the rate change.
South Australia reported a strong improvement in confidence in October, although it improved only “a little” in WA. In NSW, Victoria and Queensland, confidence drifted down.
Finally, firms reported borrowing conditions were a little more difficult in October. Demand for credit also softened, despite generally lower borrowing costs following recent rate cuts.
“The net borrowing index eased from -2 to -5 index points in October,” NAB said.
“This… reflected a rise in the proportion of firms finding borrowing more difficult to obtain, while a slightly smaller proportion of firms reported that finance was easier to obtain.”
“The proportion of businesses requiring finance fell from 32% to 28%; this outcome represents the softest demand for credit in the history of the series.”