Business confidence slips despite brightening conditions

Business confidence fell three points in February to one index point after strengthening gradually over recent months, NAB’s Monthly Business Survey reveals, while conditions improved marginally.

According to NAB, the fall “reflects some degree of increased concern about the international economic environment”.

“Businesses appeared less confident about near-term activity in February than in January,” NAB said in its report.

“While overall confidence remained positive, uncertainty emanating from the euro zone and financial markets… may have weighed on the confidence of some sectors.”

In addition, the strong Australian dollar continues to weigh on trade-based industries. Overall, the index remains below the series long-run average of six points.

Meanwhile, business conditions improved marginally in February – up one point to three index points – consolidating a pickup in the previous month.

“The current read on business conditions is slightly above average (of +1 for the full history of the survey), implying an economy that is running close to trend,” NAB said.

“The improvement… largely reflected a sharp increase in trading conditions as well as a solid improvement in profitability, while employment conditions softened a little in the month.”

“Overall, while activity has been improving gradually over the past six months or so, forward looking indicators of activity remain fairly soft.”

“It is likely that activity will remain subdued, at least in the near term.”

With regard to business conditions by industry, conditions improved significantly in wholesale, and transport and utilities, unwinding a sharp deterioration in conditions in the previous month.

Conditions also strengthened notably in recreation and personal services, and manufacturing, while they weakened modestly in mining and retail.

Overall, business conditions were strongest in transport and utilities (24 index points), recreational and personal services (19 index points) and mining (17 index points).

They were weakest in retail (-14 index points), manufacturing (-7 index points) and construction (-6 index points).

On a state by state basis, conditions rose sharply in WA in February despite the softening in mining activity, and were marginally better in Queensland and South Australia.

Conditions were unchanged in NSW and slightly weaker in Victoria. Conditions improved significantly in Tasmania but remain very subdued overall.

South Australia was the only state to report an improvement in business confidence in February.

The sharpest decline in confidence occurred in Tasmania followed by Queensland, Victoria and NSW. Trend confidence was strongest in WA and NSW, and was weakest in Victoria.