Business confidence flat during June, NAB business survey reveals

Business confidence remained steady during June, according to the latest NAB Business Survey, following a decrease of 13 points in May due to concerns over the proposed mining tax and profitability.

The new survey was taken after Julia Gillard became Prime Minister, but before the mining tax negotiation was finalised on July 2.

Declines in confidence in the mining and manufacturing industries were offset by improved confidence in the retail and wholesale industries, while overall conditions, construction and finance continue to remain strong.

The survey shows business confidence fell by one point to four points, with conditions actually rising two points to eight. This was due to a four point increase for both the sales index, and profitability expectations.

Confidence regarding stocks remained steady at negative two points, while the employment index dropped by one point – the third consecutive monthly decline.

However, the overall confidence index rose by two points to eight, while in trend terms fell by two points to seven.

Confidence in the mining sector dropped, although the survey was taken before the negotiations with the Government were completed. Chief economist Alan Oster also said that even though confidence improved in a number of areas, like retail and manufacturing, businesses are still struggling.

“Mining reported the strongest conditions by far, followed by construction and finance. Conditions were weakest in retail, wholesale and manufacturing,” he said. Retail actually remains the weakest sector, in terms of business conditions, “followed by wholesale and manufacturing”.

“Conditions improved strongly again in mining across all three components, probably reflecting the renegotiation of minerals contracts. There was also a pick-up in retail conditions, although they remained weakest, but transport deteriorated, mainly because of weaker profitability.”

The survey also reveals credit availability dropped during June, with the index rising to negative five from negative eight. “This easing in credit largely reflected a decline in the proportion of businesses finding credit more difficult (8%, down from 13% in May),” Oster said.

New orders increased during June, thanks to improvements in the recreational and personal services, transport and storage and mining industries, while capacity utilisation recorded an increase of 82.1%.
Capital expenditure fell by seven points to five. “The series has been in positive territory for five successive months and, looking through the recent volatility, points to a reasonably favourable business investment environment.”

Labour costs fell in June, due to “softness in employment”, but increases were recorded in the mining sector.

“Overall, domestic price pressures remain low at present, but a sustained tightening in the labour market could well produce increased wage and inflationary pressures. On the other hand a sustained increase in the Australian dollar would help offset these inflationary pressures.”

NAB says the survey reinforces the view that GDP growth is still reasonable, saying it expects growth of 2.75% in 2010, and 3.5% in 2011. It also expects interest rates to remain on hold until later this year, with two rises to 5% by the end of this year and a peak of 5.5% in mid-2011.