NAB has released its quarterly ASX 300 business survey, which registered a big improvement in business conditions, particularly for larger firms, but also a weakening of business confidence. However, employment and capital utilisation remains soft, although orders and capex plans are up. Cost pressures are also subsiding, which is helping business margins:
Business conditions for ASX 300 surged 18 points to +11 points in the December quarter of 2013, (from -7 points in the previous quarter) – the highest rate since Q1 2011. This was a stronger improvement than conditions for the broader economy which also improved to +1 points in the quarter (up from -7 points in Q3). Most industries improved, but retail, transport & wholesale recorded the strongest rise. Recreational services was the only exception, recording a fall.
The sudden jump in business conditions for larger firms was primarily driven by improvements in trading and profitability. Employment also trended upwards for both the broader economy and ASX 300, but remained in contractionary territory.
Despite the overall jump in business conditions, confidence for larger firms softened — contrasting the broader economy where confidence was unchanged at elevated levels. ASX 300 confidence declined to +1 (from +3 points), while the broader measure of confidence remained at +7 points.
In line with the broader economy, larger firms benefited from diminished costs – as labour, overhead and purchase costs decelerated in the December quarter.
Consistent with reported improvements in sales, large firms took advantage of lower input costs to help restore their margins, which have been under pressure for some time – albeit to a lesser extent than the broader economy.
Capital expenditure for larger firms bounced back from the September quarter, reaching its highest level since this time last year. Capex outcomes varying starkly between industries. Manufacturing gained momentum and retail held up. Wholesale, construction and recreation services are very weak.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
