Rate cut bets for the October meeting should have just sold off. The NAB Survey for August is out and shows an economy that is weathering a shift from a decline in enthusiasm for mining investment with a rise in interest rate sensitive sector activity. Here are the headline results:
No alarm bells in there. If anything it’s improving conditions. Here’s what NAB reckons:
Business conditions improve on the back of strengthening trading and profitability – especially in interest sensitive sectors. But confidence falls – reflecting global uncertainty with sharp falls in mining confidence and conditions. Forward indicators of demand improve but remain soft. Labour market remains broadly stable. Near-term domestic forecasts little changed. Forecasts imply rates still on hold (line ball call).
! Business confidence fell back in August, after improving solidly in July. Mining was the worst affected industry, with the weakened outlook for commodity prices crunching confidence in this sector. That said, most sectors saw weaker confidence levels on the back of global uncertainty (especially in Europe and the US). A notable exception was retail where lower rates seem to have offset these impacts – both for confidence and conditions.
! Business conditions improved in August – albeit the levels of activity remain subdued. The improvement was driven by broad-based improvements in trading conditions, profitability and to a lesser extent employment. Conditions improved across most industries – with particularly strong kick ups in retail and wholesaling. Against that mining conditions fell heavily – in line with the softening in commodity prices and especially iron ore prices. Consistent with this heavily in WA, though they remained elevated relative to other states in trend terms.
! Forward orders and capacity utilisation improved somewhat in August, but remain fairly lacklustre. The stocks index rose solidly, which in the past has been positively correlated with growth. Overall, the survey implies that underlying demand growth will be around 3-3¼% in Q3 2012 – that is, while mixed, still around trend.
! Businesses demand for credit rose in August, possibly aided by RBA rate cuts over the past eleven months, but overall lending conditions were difficult. Labour costs growth fell back to more ‘normal’ levels in August, following the increase in the national minimum wage in the previous month. Product prices growth remained fairly subdued while purchase cost pressures softened modestly. Retail prices growth was broadly flat, though an easing in labour costs growth may have helped to alleviate some pressure on margins.
