NAB survey indicates no rate cut

The NAB survey has put in a solid performance for September. Business confidence remained subdued but conditions and trading jumped. So too did the employment index. Forward orders was still in deep negative territory and exports are subdued.

Given the backdrop of global volatility, I see this as a very good result. As does NAB:

Business conditions improved in September, after edging down over the previous two months, with the outcome suggesting that the Australian economy may be stabilising. However, there are still signs that a swift recovery may not ensue, with forward orders remaining weak and stocks contracting a little in the month. Nonetheless, capacity utilisation bounced back, to be above long-run average levels. Overall, the Survey’s activity readings, if maintained at current levels, are broadly consistent with underlying demand growth of around 3% in the December quarter (at an annualised rate) and GDP growth (ex coal) of 3½%.

Business confidence rebounded sharply in September, in line with better conditions and helped by the sharp depreciation of the AUD coupled with speculation that domestic interest rates will be reduced. Confidence rose across a majority of industries in the month, with a particularly strong rise in manufacturing implying that the lower AUD provided some relief.

Conditions improved in all industries other than personal & recreational services – which was unchanged at strong levels. During September there were large gains in manufacturing and mining conditions. Despite this, conditions remain at depressed levels in manufacturing, construction, retail and wholesale.

Labour costs growth eased a little in the month, after solid outcomes in the previous two months.

So, the bounce I’ve been expecting as interest rate expectations have stabilised is here:

As you can see, we’re coming off some pretty nasty downtrends and September really only steadies the ship. If we look sector by sector, we’ll see something of a split:

There’s been a decent jump in conditions in retail, lending more support to the notion that stabilisaing rates has  loosened wallets a little (as we’ve seen in the last couple of months of retail sales). There is no evidence of this flowing through to banks or realty yet. We’re still debt-averse.

But the big jumps in the month were in manufacturing, with exports, general and employment conditions all leaping (though still negative). It’s wonderful what a lower dollar can do (take note manufacturing lobbies).

In terms of states, the uptick was across the board:

With the employment index bouncing into positive territory, this report mitigates against any immediate rate cut.

2011m09 Press Release (1)

Houses and Holes


  1. So job ads for September deteriorated but the NAB employment index improved? How is the employment index calculated?

    Good to see that the general deterioration has finally slowed or stablised – interesting to see though if a stong, sustained rebound occurs any time soon. For it to return to pre-GFC levels, I think we’ll have to see overall credit growth rise to a tad more than the current 3.5% or so.

    • yep, slow but not getting any worse is what im hearing. but that means continued losses in FTE’s.

      NAB survery better but still reckon you could get a spike higher in unemployment on thurs following septembers doom and gloom. if so a rate cut cup day for sure.

      • hey H&H have you guys put your clocks forward on MB yet? my last post say 3.14 but market is definately closed

      • Rod, I will vote for you if you can get me 6% without moving my cash every three months. You can get >6% now, but you need to move it to get the bonus.

      • Timing is still highly uncertain though and I’d be surprised if it happens this year. They will probably give some relief to people after they max out their credit cards over the Christmas period. They may also lend a hand to the housing market when it quietly dies early next year. This is not to say that I support lower interest rates, quite the opposite I think that they should be a bit higher with the fiscal policy promoting non-housing forms of investment.

        • agree JPK. My position since the start of the year is that the first cut will be early 2012, unless the global economy implodes before then. havent seen anything to change that view.

      • Either take some medicine now or risk having absolutely no future on the present trajectory. Unemployment never killed anyone, the strong, capable and flexible often come out better than they went in.

  2. Considering the risk of our banks imploded in bad-debt write-off when the property bubble burst, I think 7 or 8% interest rate is minimum to fairly reward depositors, even with government guarantee on less than $250K balance.

    • Deo
      I think effective rates would work something like this. We want savings so that we can invest in our own industries and resources. I’d say if we were really serious about this we would be looking to give people 5% real return for their giving up current consumption for this. Let’s settle on 4% for the sake of the argument. Say inflation 4%, we need to be giving the saver 8% pre-tax. So that is after tax. So, assuming average marginal tax rate is 40%, the pre-tax rate needs to be 13%.

      To do less is to keep on expanding debt, expanding our foreign debt and to continue to sell off our resources and industries to foreign buyers.

      We do get higher short term savings rates because of the various circumstances that are outlined by H&H in an article featuring the IMF report. Never the less, long term, there needs to be some sort of mark like this to set interest rates.
      Currently we have low interest rates, creating more debt, based on an artificially low inflation rate largely dependent on cheaper prices on more and more cheaper goods imported from China.
      That little scenario is about to end anyway.

  3. The RBA will drop rates, and the greedy Banks will dig us into an even deeper hole with further reckless lending.

    The cycle will continue until we are backed up against the wall with massive debt and near zero interest rates like the rest of the world.

  4. Banks won’t pass on any interest rate cut or raise deposit interest. So even if you’re saving your cash you are screwed

  5. Decreasing interest rates could allow an increase in debtors deleveraging (aggregate reduction in stock of money). Lower interest rates could tip us into debt deflation!