The NAB releases a deeper quarter version of its monthly business survey and I’ve got to tell you, the November conditions were poor. The headline confidence only fell slightly to -5, which (barring the GFC) is the lowest since 1998:
But that is the good news. The internals, quite frankly, stink:
Conditions, labour costs, purchase costs, capex, trading, profits, employment, forward orders, stocks and exports all down HARD.
The NAB does not gild the lilly:
Business conditions were considerably weaker in the December quarter, deteriorating to their lowest level since June quarter 2009. Official ABS data showed a softening in GDP growth in the September quarter, and more recent activity data – including retail sales and international trade – point to further slowing in the December quarter. Our survey implies fairly tepid growth in domestic demand and GDP in the final quarter of 2012 (2¼% and 2% respectively; six-monthly annualised). Forward indicators of near-term demand weakened notably to very subdued levels, further suggesting that activity will remain soft, in the near term at least.
While still reasonably poor, business conditions appear to have held up a little better in the consumer dependent recreation & personal services, retail and wholesale sectors in the quarter, suggesting lower borrowing rates may be providing some support. Perhaps the most interesting development has been the deterioration in mining conditions, where lower commodity prices have crushed the index to sub-GFC levels. Conditions deteriorated in all mainland states except Victoria, where they were unchanged and least subdued (along with WA); conditions were very poor in Queensland.
Business confidence edged lower in the quarter and remained lacklustre overall. It appears that recent interest rate reductions have done little to alleviate business worries about the currently soft state of the local economy. Weak indicators of future demand, global concerns, a still high AUD and fiscal consolidation are likely to be weighing on expectations.
Business investment intentions (next 12 months) softened to the lowest level since September quarter 2009. This seems broadly consistent with NAB’s view that mining investment will peak in early 2014. Near and longer term employment expectations weakened further in the quarter and point to a continuing soft labour market. Lack of demand is expected to be the most significant factor impacting profitability over 2013, while concerns about tax & government policy remain important.
Product price inflation remained subdued, recording annualised growth of just 0.3%. Retail price inflation was even softer – recording only marginal annualised growth in the quarter, and implying a soft Q4 core inflation outcome. Labour and purchase costs growth softened to modestly below-average levels.
If you’d have shown anyone this in December 2011 that this was going to be the business conditions 12 months down the track after 175bps in rate cuts, they would not have believed you. Still, with iron ore rebounding this may be the bottom for a while. Let’s hope so.
