NAB Survey shows we’re in recession

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The NAB Survey for July is out and remains, in a word, dreadful:

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Business conditions remain at 4 year lows while confidence slumps to 8 month low – despite a falling AUD and lower interest rates. Conditions very poor in manufacturing, construction, mining, retail and wholesale; WA now the weakest state. Forward orders, stocks and employment still very poor. Weaker AUD hurting wholesale and retail purchase costs but weak activity sees this reflected in lower profits not higher prices.

  • The weakness in activity that has persisted for several months continued in July, with business conditions unchanged at their lowest level since May 2009. Slightly better trading and employment conditions were offset by deteriorating profitability, with the latter index falling to a 4½ year low. Conditions were especially weak in manufacturing – despite the lower Australian dollar – construction, mining and retail (albeit the latter did see better sales in July). Forward indicators provide little hope that demand will improve in the near term, with forward orders, stocks and capacity utilisation all remaining well below long-run average levels.
  • Business confidence fell to the lowest level since November 2012, with a falling dollar and the lure of lower interest rates unable to lift the mood of businesses in July. Rather, it is likely that the weakness in business activity and profitability (via the inability to pass on higher costs) is the key driver of weaker confidence. Confidence also remains extremely poor in mining – with broader flow on implications in WA. Only retail/wholesale reported better confidence levels (on the back of better retail sales). It is also possible that uncertainty over timing of the Federal election kept businesses wary during the month (the survey was completed prior the election being called).
  • Overall, the survey implies underlying demand growth and GDP (6-monthly annualised) of around 2½% in the June and September quarters. Our wholesale leading indicator implies little improvement in near-term activity.
  • Labour costs growth surged in July, despite still weak employment conditions; the implementation of a higher national minimum wage on 1 July is probably largely responsible for this rise. Prices fell again (retail prices rose a touch), but purchase costs rose sharply in wholesale and retail possibly reflecting higher import prices.

Conditions and confidence are recessonary:

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We’re still destocking:

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Conditions across metrics are falling with a possible bottom in employment but hardly decisive:

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All industries are weak:

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And all states as well:

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Net exports will prevent a recession from appearing in the data but in real activity terms we’re already there.

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2013m07 Press Release

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.