The exuberant readings on business confidence seen in recent months was pared back in July (from +8 to +4). While confidence eased in most industries, much of the change stemmed from mining and construction firms (which includes a large share on non-residential and engineering firms), suggesting an escalation in Chinese growth concerns could be putting firms on alert. Confidence fell back below the long-run average, although the confidence index remains positive and the trend has held up around average levels.
Business conditions also dropped back, falling 4 points to +6 index points in July. Looking through the month to month volatility, however, both conditions and confidence are suggesting a turnaround in the non-mining economy. All three components of conditions (trading, profitability and employment) fell in the month, with trading falling the most (down 8) and employment dipping back into negative territory. But despite the falls, both trading conditions and profitability remain relatively elevated. Conditions vary greatly across industries, but the service sectors continue to outperform. The ‘bellwether’ wholesale industry remains at weak levels, although this could reflect an element of margin squeeze due to AUD depreciation rather than a sign of weakness in the broader economy – wholesale purchase costs have increase considerably. Other leading indicators – such as forward orders and capacity utilisation – generally eased.
I very much suspect that the “turnaround” in the non-mining economy is well past and we’re living through its best right now. The next change of substance will be more likely be deterioration. The internals say it all:
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
The exuberant readings on business confidence seen in recent months was pared back in July (from +8 to +4). While confidence eased in most industries, much of the change stemmed from mining and construction firms (which includes a large share on non-residential and engineering firms), suggesting an escalation in Chinese growth concerns could be putting firms on alert. Confidence fell back below the long-run average, although the confidence index remains positive and the trend has held up around average levels.
s to +6 index points in July. Looking through the month to month volatility, however, both conditions and confidence are suggesting a turnaround in the non-mining economy. All three components of conditions (trading, profitability and employment) fell in the month, with trading falling the most (down 8) and employment dipping back into negative territory. But despite the falls, both trading conditions and profitability remain relatively elevated. Conditions vary greatly across industries, but the service sectors continue to outperform. The ‘bellwether’ wholesale industry remains at weak levels, although this could reflect an element of margin squeeze due to AUD depreciation rather than a sign of weakness in the broader economy – wholesale purchase costs have increase considerably. Other leading indicators – such as forward orders and capacity utilisation – generally eased.
