Business conditions falls on credit crunch

Market volatility caused by the international credit crunch caused business conditions to fall in September for the first time in 2007, according to the NAB Business Survey released today.

Business conditions declined three points in September, just after the worst of the international credit crisis had passed, but remained 16 points above the historic average. The drop-off was worst in mining, wholesaling and recreational and personal services, while retail and finance/property services reported solidly improving conditions.

Business confidence also took a hit in September, the fourth consecutive drop measured by the NAB survey. Business confidence is now at its lowest level since January 2007 and just above the long-term historical average.

Slightly weaker economic conditions are also reflected in the ANZ Bank Job Ads data for September, which recorded a 0.4% decline in the number of positions advertised.

“Total job advertisements remain at high levels, but the monthly trend rate of increase is easing. This suggests some steadying in the demand for labour after a period in which it had been increasing very strongly,” says Tony Pearson, the ANZ’s head of Australian economics.

But before you start getting excited that September’s softer economic figures might mean we won’t see an interest rate rise this year, two forward-looking reports by Dun & Bradstreet and the Australian Chamber of Commerce and Industry are worth a look.

According to Dun & Bradstreet Australia’s national business expectation survey, released today, sales growth expectations for the December 2007 quarter are at their highest level in almost three years, while profit growth expectations are at their highest in two years.

Crucially, from an interest rate point of view, 61% of firms expect prices to be higher than the December 2006 quarter, while 4% expect them to be lower. Wage and salary growth continues to be a big factor, with 25% of business owners saying it is the most important influence on their business in the quarter ahead, up 4% on last month.

The SAI Global- ACCI survey of investor confidence also paints the picture of a growing economy, with its “expected growth of output” index lifting to a 13-year high. Again, wages appear to be a big concern, with the survey’s predicted “growth in wages” index hitting a six-year high.

The upshot – predictions that we are much more likely than not to see an interest rate rise before the end of this year – still appears on track.

On the markets, the S&P/ASX 200 was up 0.3% on yesterday’s close to 6674.0 points at 12.35pm; while the Australia dollar has come down off yesterday’s high of US90.33¢ to 89.37¢, thanks largely to a rally by the US dollar.