Business Confidence Falls Back To Pre-Election Levels, Erasing Most Of September's Massive Gains

Australian business confidence fell significantly in October, unwinding most of the previous month’s post-election surge.

NAB’s October business survey put confidence at +5 points, falling 7 points from September’s 3.5-year high.

Business conditions remained stable at -4 points, with significant improvement in the mining sector offset by a marked step down in activity in the recreation and personal services, finance, business and property sectors.

NAB pinned the fall in business confidence on lacklustre conditions:

“Businesses may have reassessed their expectations about future activity in the changed political environment given the continued weakness in actual business conditions.

Nonetheless, overall confidence remains relatively higher than the well below-average levels over the previous three years.”

Capacity utilisation fell to 79.3% – the lowest level since June 2009 – while the capital expenditure index fell by 4 points to -2 index points, reaching the lowest reading since June this year.

NAB’s forward orders index fell by 2 points to -2 index points, thanks to less demand in the mining and wholesale sectors and despite an improvement in transport and utilities.

NAB said survey results implied 6-monthly annualised demand growth of around 2.75% and GDP growth of 2.5% in Q3 2013. “Assuming October trend business conditions continue into Q4, implied growth would lift to around 2.76-3%.”

Its GDP forecasts remained relatively unchanged from the previous month, with growth expected to soften to 2.3% in 2013 before rising to 2.4% in next year and 2.9% in 2015.

NAB is expecting the RBA to cut rates in May – later than its previous forecast of February – with unemployment levels key to the timing, extent and number of future cuts.

Here’s what it said:

Rising asset price trends and higher confidence is likely to see RBA wait to see how labour market trends play out before cutting cash rate again.

We expect next rate cut in May, by which time labour market conditions likely to have deteriorated sufficiently to prompt further policy easing.


While the unemployment rate stabilised in October, labour demand remains weak.

Demand for heads remains insufficient to prevent the unemployment rate continuing to rise; demand for hours is still languishing … Unemployment to nudge 6% by end 2013, a touch above 6½% by end 2014, before easing to 6.3% by late 2015.

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