NAB has today released its Business Confidence and Business Conditions survey for May, which revealed that confidence weathered the post-Budget storm well, recording a flat reading over the month, although conditions worsened, reflecting weakening sales:
Business confidence was unchanged in the month, at around long run average levels. That result was surprising, with firm’s still discounting persistently soft levels of business conditions and the negative sentiment surrounding the Federal budget – including the post-budget collapse in consumer confidence. Against that business was relatively sheltered from the Budget. Some leading indicators from the survey improved (especially new orders), but generally remain soft. However capital spending plans remain subdued and capacity utilisation broadly unchanged at relatively low levels.
Business conditions dipped slightly again in the month, revealing an emerging trend lower since the start of the year. Together with the poor conditions reported by wholesale – a bellwether industry – it suggests little scope for improvement in domestic demand. Conditions varied significantly across industries: looking through the monthly volatility service industries remain the stand out performers, while most other industries are reporting negative conditions (the weakest being mining). Employment and profits remains soft (the latter is negative), while sales eased (still positive).
Our wholesale leading indicator suggests much weaker underlying conditions, pointing to further below trend economic growth in the second quarter of 2014 – and little near term improvement in prospect in demand.
Firms continue to report relatively benign inflation pressures, assisted by lower purchasing costs and relatively low labour cost pressures. Retail prices also eased.
Importantly, the employment outlook is steady, and broadly neutral according to NAB. This is “consistent with an unemployment rate of around (or slightly above) 6% in the near-term, reflecting the transition to less labour-intensive mining operations and lower public sector employment that is not fully offset by rising employment in residential construction”:
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Overall, a lukewarm report: neither dire nor strong.
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.
