New reports have revealed business confidence and conditions are improving, despite domestically-focused sectors starting to feel the flow-on effect of consumers slowing their spending and increasing their savings.
According to NAB’s Monthly Business Survey, business conditions rose by four points in February, remaining in negative territory at negative two points, indicating only a partial recovery from the January floods.
Business conditions rose strongly for the second consecutive month, up 10 points to 14 points. According to the report, which was driven by a “sense of relief” in Queensland as the business community looks towards reconstruction.
Conditions improved across all industries expect for transport and utilities, and retail. Although mining is returning to normal and recreation is tracing well, other sectors continue to suffer including retail, wholesale, manufacturing and construction.
With regard to the states, business conditions fell in South Australia and WA but improved in Queensland, NSW and Victoria.
Queensland also witnessed a rise in confidence, up 14 points to 24, making it the most optimistic state, followed by WA, Victoria, NSW and South Australia.
Despite the rebound in confidence, NAB expects figures for the March quarter to stall due to the floods, a sentiment also felt by Westpac.
“We suspect the Australian economy contracted in the March quarter as these weather events disrupted economic production,” Westpac says.
“Note that flooding also impacted parts of NSW and Victoria… Indeed, unfavourable weather was a negative late in 2010, with the national accounts reporting a sharp fall in exports during the December quarter, in part due to unfavourable weather conditions.”
“Beyond the first quarter, the rebuilding effort will provide a boost to activity, although measures by the Federal and Queensland State governments will partially offset this impact.”
Meanwhile, the latest Dun & Bradstreet Business Expectations Survey, which details the outlook for the June 2011 quarter, shows sales expectations are down 14 points to an index of 17 while profit expectations have fallen by 17 points to 13 points.
With regard to the issues expected to influence business operations in the June quarter, 29% of executives rank interest rates as the primary influence, an increase of 2% from last month.
The survey shows 23% of firms expect wages growth to be the primary influence on operations, while 15% believe fuel prices will be their main concern in the quarter ahead.
Dun & Bradstreet chief executive Christine Christian believes slow consumer spending is not only hurting retailers but starting to affect their suppliers in wholesale and manufacturing.
“Heavy discounting by retailers does not appear to be dissuading consumers from paying down their debt and increasing their savings,” Christian says.
“Retailers now appear to be accepting the permanency of this trend and have adjusted their expectations for the June quarter accordingly. As a result, manufacturers and wholesalers have also lowered their expectations and the consumer effect washes through the supply chain.”
The survey reveals only 18% of executives say they are likely to seek finance or credit to grow their business in the quarter ahead, with 76% saying it’s unlikely and 6% saying they’re unsure.