Business confidence lifts in December, but employment weaker: NAB report

The latest monthly business survey showing confidence strengthened in December but remained below the series long-run average is a creditable result given the European debt crisis, although not a turnaround, a bank economist says.

The National Australia Bank monthly business survey, released this morning, shows that business confidence edged up one percentage point to three points in December, and business conditions were steady at one. Zero separates contraction from expansion.

NAB economist Alexander Knight says the result is not a turnaround as such, with the economy tracking sideways at the end of 2011.

“It’s still below average, with overseas pressures weighing on some industries and some soft forward looking indicators such as employment, capacity utilisation and forward orders,” Knight says.

“But given what’s happening overseas and the fear over a European recession, it’s not a bad result.”

Questioned whether a fall in the hiring intention metric was worrying, Knight said it was a reflection of the softer labour market and possibly a hangover from the previous month’s rise, but he did not expect unemployment to continue to worsen through 2012.

Rather, the bank expects unemployment to stay relatively flat in the next year.

NAB chief economist Alan Oster says the Reserve Bank’s two rate cuts in November and December last year had helped protect business confidence.

“Business conditions remained varied across industries but the disparity between the weakest and strongest performing industries narrowed in December,” Oster says.

“Conditions recovered remarkably in construction and manufacturing, while mining, recreation and personal services and retail conditions weakened.”

But Knight says the narrowing of the gap is welcomed, in that at least the under-pressure industries of manufacturing and construction had stopped deteriorating. “It’s good seeing that stop, but the narrowing gap is more a reflection of weakened commodity prices,” Knight says.

The survey, of 400 firms excluding farm businesses from January 9 to 13, also found that conditions recovered very strongly in SA, which was the equal strongest mainland state with WA, while conditions were poor in Queensland and Victoria.