Business confidence falls sharply in December: Economy Roundup

Business confidence declined in April due to rising interest rates and more negative trading conditions, according to the latest National Australia Bank monthly confidence survey.

Confidence dropped 11 points to eight in December, with retail, transport and personal and recreational services recording the worst declines.

But while confidence has declined, overall conditions have remained at trend levels with business conditions remaining at 10 points. Trading and profitability both gained two and one points respectively to +17 and +12.

“The domestic economy continues to show significant momentum but that confidence has started to move back to more realistic levels given the underlying activity levels being reported,” NAB said in the survey.

“The falls in confidence were most pronounced in sectors that reported significant softening in activity in the month of December… That appears most apparent in retail/wholesale and personal and recreational services sectors.”

Three consecutive interest rate rises were pinned as a major cause for the drop in confidence, but NAB said in the survey’s accompanying report that the Reserve Bank of Australia may soon pause its series of rises.

“Our judgement is that having done 100 points they will now pause in March and assess the economy’s response,” NAB said. “Faster growth in activity or any sign of accelerating asset/retail prices could make that pause very brief… On balance, however, we have adjusted the timing (but not the quantity) of the expected rate rises in 2010.”

In the survey, labour conditions improved by five points to seven. Business outcomes produced some mixed results, with retail and personal and sectional services reporting declines, but transport, finance and business services and manufacturing have all improved.

Additionally, forward orders fell two points to seven, with NAB saying the overall number remained strong.

“Looking at the details, it appears that nearly all of the decline in orders came from the construction sector – and it could well be that the seasonal influences are not being fully picked up in the seasonal adjustment process.”

“Certainly, further strength in transport orders and retail/wholesale are encouraging. More importantly over the December quarter, the story from forward orders is one of accelerating growth in demand.”

Shares open higher after Wall Street gains

Meanwhile, the Australian sharemarket has opened higher today after Wall Street posted good results due to good reports from oil giant ExxonMobil.

The benchmark S&P/ASX200 index was up 62 points or 1.39% to 4586.9 at 11.45 AEST, while the Australian dollar moved up slightly to US89c.

NAB shares fell 0.2% to $26.04, while Commonwealth Bank shares rose 1.5% to $53.76. Westpac gained 0.6% to $23.68, as ANZ gained 0.4% to $21.89.

As reported in The Age, mining giant BHP Billiton is now expected to record a half-year profit of $US5.1 billion, with over $US1 billion eradicated by the financial crisis.

Such a result would be 16.6% lower than the previous December half profit of $US6.12 billion. The company’s underlying earnings before interest and tax is now expected to be about $US7.9 billion down from the previous corresponding period’s result of $US11.8s billion.

Also in the mining sector, oil and gas explorer Karoon Gas has now requested a trading halt of shares, pending an announcement on its drillings results in Western Australia.

Arrow Energy has now said its share of costs relating to the investment at the Fisherman’s Landing LNG project will be about $1.32 billion, with options including a project stake sale, corporate and project debt finance and export credit agency supported debt finance.

“Included in our funding options are also a number of milestone payments that can be earned under our agreement with Shell,” Arrow said in a statement.

Shopping centre owner Westfield Group has now set an estimated distribution of $0.47 per security, for the six months ending December 31.

The company said its total distribution for the year to December would now by at $0.94 per ordinary security, in accordance with previous forecasts.

Obama reveals $1.56 trillion deficit

Overseas, US President Barack Obama has now announced a $1.56 trillion deficit for the 2010 year, up from 9.9% to 10.6% of GDP.

And while the White House has now introduced measures to reduce the budget deficit to $US700 billion by 2013, forecasts indicate the deficit will remain for the rest of the decade.

“We won’t be able to bring down this deficit overnight, given that the recovery is still taking hold,” Obama said in a televised statement. “We will continue, for example, to do what it takes to create jobs. That is reflected in my budget. It is essential.”

The budget itself is a massive $3.8 trillion. Analysts have also pointed out the deficit reduction demands include spending cuts which must be approved by Congress, and public debt is still expected to rise above 71% of GDP by 2013 – up from 53% in 2009.

Obama also announced plans to visit Australia in March, as part of a south-pacific trip that will also see him visit Indonesia. White House press secretary Robert Gibbs announced the meeting, but said no final dates have been laid out.

On Wall Street, stocks rose due to good results from ExxonMobil and higher-than-expected manufacturing data. The Dow Jones Industrial Average gained 118.20 points or 1.17% to 10,185.33.