Business conditions worst in three years as rate cuts fail to stimulate confidence, NAB survey reveals

Business conditions have fallen to their worst level in over three years, while confidence is also subdued as companies struggle to extract any optimism from the current downbeat economic environment.

It seems the Reserve Bank’s decision to lower rates may not have had the desired effect, NAB’s monthly business survey reveals, with companies “likely to be focusing on the reasons for the rate change”. These include a weak global economy, consumer sentiment and a higher Australian dollar.

The findings of NAB’s survey for October found that conditions have recorded their weakest outcome
since 2009 – with low confidence likely having an impact on demand.

And forward orders suggest it won’t be getting better.

“Confidence remained weakest in mining, which is likely to reflect concern about falling commodity prices and the outlook for the Chinese economy,” NAB said.

“The latest rate cut by the RBA at its October board meeting appears to have done very little to improve sentiment. “

The results across all sub-indexes are poor. Forward orders, capital expenditure and capacity utilisation are down, and “point to continued soft near-term demand”.

“The survey’s capital expenditure index fell to its lowest level since August 2009, suggesting the brakes may be tightening on the business investment boom – especially mining.”

“Labour costs also continued to soften, indicating poor employment conditions, while purchase cost pressures also increased.

The outlook isn’t good either, NAB says, with conditions falling across most industries. Forward indicators of demand show little improvement in the short term.

Conditions fell in poorer performing industries, including wholesale, manufacturing and construction, and also in mining, which has seen some softening in commodity prices. Confidence deteriorated heavily in the construction market.

Manufacturing actually recorded the highest confidence levels, despite poor conditions.

“The persistent divergence in industry conditions indicates that the Australian economy is undergoing a structural transformation towards mining and service-based industries, and away from traditional manufacturing and discretionary retailing,”

Cashflow remains strongest in transport and utilities, and weakest in manufacturing and construction. Purchase cost pressures have eased across most industries, although grew by 1.2% in recreation and personal services.

Employment conditions fell across most industries, except in transport and utilities, while profitability fell in wholesale, manufacturing and construction. Profitability remains strong in transport and recreation.