Business confidence jumps but jobs outlook is bleak

A more stable outlook for global financial markets and the stimulatory effects of the Federal budget have helped business confidence jump sharply in May, according to NAB’s monthly business survey. But while business confidence leapt 12 index points to a reading of -2, business conditions fell slightly in May, as actual trading conditions took a turn for the worst.

While the outlook for profitability was steady, trading conditions and employment conditions have fallen sharply.

NAB’s chief economist Alan Oster cautiously welcomed the results.

“The May survey results are encouraging for business confidence but the strengthening in business conditions has stalled, for now at least. The improvement in confidence has developed more momentum – no doubt helped locally by the budget and globally by improving sentiment and equity and commodity markets.”

But he says weak data around forward orders and capacity utilisation indicate that businesses are still extremely nervous about investment or expansion.

“There is no clear evidence that the tentative mood has receded from business plans. Also, the survey continues to show no fundamental build up in stock … [and businesses are] not yet reversing the process of destocking that has been evident now for some months. This suggests businesses are continuing to cut inventories with de-stocking evident across manufacturing, construction, retail and wholesale.”

Two bright notes for business can be found in the area of costs, with the survey showing wages costs continue to fall (down -0.4% in May) and purchasing costs trending downwards (the pace of cost growth has dropped from 7.2% a year ago to 5.5% in May).