Business confidence and conditions slip

Business confidence fell during September following several months of growth, with weaknesses recorded in the manufacturing, wholesale and retail industries.

The NAB monthly business survey and economic outlook found that confidence dropped by four points to +14, still remaining above the long-term average trend.

However, the survey was taken before last week’s interest rate rise and it is possible that confidence could have fallen further following this shock rise.

Business conditions fell one point to +3 index points, which the report says reflects “significant falls” in trading and profitability.

However, a surprisingly strong reading for employment (up 10 to -1 index points) and forward orders show that the recovery is underway.

“Having seen a remarkable surge in confidence in the last six months it was probably inevitable that some weakening was due,” NAB’s chief economist Alan Oster says.

“Certainly our view was, and still is, that the readings for confidence are somewhat ‘unrealistic’ – especially when compared to actual business conditions.”

While the survey found that forward orders were stronger in the mining, manufacturing and infrastructure industries the report notes that there has been “no change in economy-wide capacity utilisation and de-stocking continues”.

“Across sectors, stronger mining (world conditions) and manufacturing (infrastructure) conditions were offset by softer construction, wholesale and transport conditions.”

Labour costs increased by 0.5% on a quarterly basis, but still maintain a record low reading of 0.5% in the 12 months to September. Purchase costs eased on the back of a stronger Australian dollar, slowing a 12-month rate of 2.9% – the lowest since 2004.

The report also found that wage pressures are still low, as well as pressures on prices, while retail price growth has slowed by 0.2% to their lowest reading since 1997.

Availability of credit eased “significantly”, with the difficulty in finding finance index falling 11 points to seven. The number of those not wanting credit jumped 11 points to 41%.