Business conditions and confidence fall again

Business conditions fell four points to +1 index point in May as the domestic economy continued to weaken, according to data released today from the National Australia Bank Monthly Business Survey.

The business conditions index is at its lowest since February, following the Queensland floods, and is now five points below the long-term national average of +6 points.

The decline in business conditions reflected a poor overall showing by the domestic economy in May. Business confidence fell by one index point, down from +7 in April to +6 in May. Trading fell from +7 to +2 and probability fell from +3 to 0 index points.

Rob Brooker, head of Australian Economics and Commodities at NAB, does not expect strong growth in the economy until the September quarter.

“The bounce back in the June quarter will be softer than what people are hoping for,” Brooker told SmartCompany this morning.

“The data for house prices, trade and retail is still fairly soft. Although there is strong growth momentum, it’s not coming through just yet.”

The resources sector continues to grow with business confidence for mining up +10 points to +50 index points. Meanwhile confidence levels fell -2 points in manufacturing and -1 in wholesale.

According to NAB, growth is forecasted to continue in the resources sector.

“We expect a huge amount of investment from the mining sector,” Brooker says.

“The level of exploration and expenditure for projects in Western Australia and Queensland will continue in the June quarter. Commodity prices have been supportive and there is still strong demand in China.”

Brooker added that due to rebuilding in flood-affected areas and further mining projects, the construction sector could expect improvement in June.

NAB forecasts the next Reserve Bank of Australia interest rate rise in August, from 4.75% to 5%, with a final adjustment to 5.25% towards the end of the year.