NAB survey tanks in May

The May NAB Business Survey is out and is not pretty. The headline business conditions number fell to -4, which is well below the bullhawk inspired lows of last year:

And business confidence dropped to -6, still well above the bullhawkian low of last year, thanks no doubt to rate cuts:

The internals of the survey are a sea of red:

The employment number is the big one. The weakening trend now looks like this:

A virtual opposite of the ABS unemployment figure. Go figure.

This is the weakest survey result in three years. According to NAB:

• Business confidence deteriorated sharply in May, with businesses now expecting weaker near-term activity, despite a 50 bp rate cut early in May and 100 bps of cuts over the six months to May. Rather, businesses appear to have been concerned about euro-zone and global growth issues. The Commonwealth May Budget was viewed very unfavourably by businesses.
• Business conditions fell heavily in May, following declines in activity in April. The deterioration in activity was broad based across industries and across trading, profits and especially employment. The significant deterioration in employment, a lagging indicator of demand, suggests the weakness in activity has begun to bite and employers are preparing for a more subdued outlook as forward orders and stocks trend lower, and capacity utilisation remains worryingly low. Overall, the survey implies underlying demand growth in the June quarter may slow to around 3%, while GDP growth may slow to around 2%.
• Conditions deteriorated across most industries in May, with particularly sharp declines in mining – on the back of very sharp commodity price falls and continuing industrial disruption – construction and retail. Conditions are worryingly subdued in construction, largely reflecting weakness in residential building activity. Conditions also deteriorated further in retail and remain poor in manufacturing – despite the depreciation of the AUD and the RBA’s rate cut. Conditions deteriorated across all mainland states except Victoria, with WA and SA now the only states to report positive activity in the month.
• Lower interest rates may be encouraging stronger demand for credit, with the proportion of respondents reporting a need for credit rising to 53% in May, from 31% in April.
• Labour costs growth ticked down in May, consistent with the deterioration in employment conditions, as did purchase costs growth. While product prices growth picked up marginally, economy wide inflation remains very subdued. Similiarly, retail prices barely suggesting further discounting, and low core inflation.

This release is very supportive of the April/May freeze I’ve discussed and is strong support for the recent rate cut.

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