Business confidence soars despite rising pressure from interest rates

Business confidence surged to the highest point since May 2002 with rising interest rates and lingering concerns about the unemployment outlook the only dark spots on Australia’s incredible economic turnaround.

National Australia Bank’s monthly business survey showed business confidence jumped three points to 19 points in November, with sentiment particularly jumping in the mining sector, the retail sector (particularly related to car dealers) and the transport sector.

Actual business conditions weakened slightly in the month from 12 points to 10 points (following a nine point jump last month), with conditions down in mining, manufacturing, transport finance and personal and recreational services.

Trading conditions remained steady and profit conditions dipped only slightly.

“The key finding… is that the domestic economy continues to show significant momentum,” NAB’s chief economist Alan Oster says.

“Business conditions remain well above long run averages and importantly the survey points to an unexpected boost in retail activity. Confidence also continues to build and forward orders are now at their highest level since late 2007. All of this is truly a remarkable outcome and one that continues to surprise.”

The strong momentum carried by the business community into 2010 was underlined by a second survey by ratings agency Dun & Bradstreet, which showed 46% of firms expect revenue to grow in the first quarter of 2010, while 28% of firms expect profits to rise.

However, both surveys shows that employment continues to lag behind rising profits and sales. The D&B report showed just 6% of firms are planning to hire, while 7% are expecting to reduce employees in the March quarter.

The D&B report also highlighted increasing concerns with interest rates after the RBA has boosted rates over the last three months, with 37% of respondents nominating rates as the factor that will have the biggest influence on their business in the next quarter.

However, in a sign that inflationary pressures in the economy may be easing, selling price expectations have fallen to the lowest level ever recorded in the D&B survey.

Dun & Bradstreet’s CEO Christine Christian says that while the improving outlook for sales, profits and capital expenditure is a great sign, falling selling price expectations will be music to the ears of the RBA.

“A reduction in selling prices is crucial in helping the Australian economy return to prosperity without the concern of rising inflation. As the effect of the economic stimulus fades, the Australian dollar strengthens and concerns increase about the impact of interest rises the affordability of goods and services will become increasingly important in the months ahead.”