Record low business conditions and political uncertainty drove business confidence levels down three points to an 8-month low last month.
NAB’s July business confidence survey found that the mood had deteriorated since a flat reading in June, despite a falling Australian dollar and low interest rates.
Confidence was especially low in mining, construction and manufacturing. From the NAB report:
While a lower Australian dollar may be expected to improve sentiment in the manufacturing sector, it may be the case that manufacturers remain nervous about whether the dollar will remain low.
For construction, it is possible that the weakness in the non-mining economy and perhaps some hesitation in the lead up to the Federal election are weighing on confidence in this industry.
Retail and wholesale firms actually became more confident in July, which is consistent with rises in sales and capacity utilisation.
Confidence in mining was the weakest of all industries (-23), with this industry clearly very concerned about the outlook for mining activity.
Elsewhere, confidence was also poor in construction (-7), manufacturing and wholesale (both -6), while it was least subdued in retail (zero), finance/ business/ property (-1) and recreation & personal services (-2).
Business conditions held steady at -7 points – the worst level since May 2009. Slightly better trading and employment conditions were offset by deteriorating profitability, with the latter index falling to a 4.5 year low.
Conditions improved but remained negative in retail (-12) and mining (-15) industries, consistent with soft retail trade data and declining mining investment.
Only the recreation and personal services industry reported positive conditions (up 10 points to +11), while conditions in the finance, business and property industry fell 15 points to -3, and construction fell 11 points to -18.
“The general weakness in activity across industries suggests that growth in the domestic economy has stalled,” NAB reported.
NAB said the July business conditions reading validated the Reserve Bank’s decision to cut the cash rate to 2.5% earlier this month.
NAB noted that the survey was conducted prior to Kevin Rudd’s announcement of a September 7 election, so some degree of political uncertainty may also have weighed on business confidence.
It said survey results implied underlying demand growth and GDP of about 2.5% in the June and September quarters, with GDP softening to 2.2% in 2013 before rising to 2.6% in 2014.
NAB expects unemployment to rise above 6% this year. “When combined with still low inflation, we expect another RBA cut, probably in November, and more cuts may follow,” it said.
The Australian business climate certainly has deteriorated, but things still aren’t nearly as bad as they were during the GFC. Via Arab Bank treasury dealer David Scutt on Twitter:
— David Scutt (@Scutty) August 13, 2013