Both confidence and conditions declined this month (after a period of stabilisation in conditions), though it appears too early to fully quantify the effect of the coronavirus with around 50% of firms reporting no impact to date. That is surprisingly small but, in our view, will clearly deteriorate going forward. Even so confidence is now firmly negative and business conditions appears to have renewed its previous downward trend – with both series well below long run averages.
More importantly, forward orders deteriorated significantly and is quite negative. While the deterioration in the survey is not as large as we had feared, the notable decline in rec & personal confidence over the past two months, a decline in exports and the overall softening in forward orders (in part reflecting in weaker confidence) are all areas that would have been expected to show a virus impact. More broadly, the survey continues to suggest ongoing softness in the business sector with conditions and confidence having tracked below average for some time and capacity utilisation hovering around average in recent months. This has been reflected in reported capex falling to a below average level after trending lower over the past 18 months or so. The employment index ticked up in the month and is back around its long-run average despite the ongoing weakness in confidence, trading conditions and profitability. However, while it remains a bright spot in the survey it too has moderated, and implies a significantly slower pace of growth in employment when compared with 2018 and early 2019.
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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.
