Budding start-ups must avoid interest rate-hit sectors: NAB

People looking to start a business should steer clear of the housing, wholesale and retail sectors due to their dependence on interest rates, according to NAB’s chief economist.

In its Monthly Business Survey, NAB said business conditions weakened sharply in October, although employment rose four points.

Alan Oster, the bank’s chief economist, says consumers ultimately remain nervous, which is particularly evident in the retail and housing sectors.

“Anything that’s associated with interest rates is less than ideal because you’re going to see further rate rises,” he says.

Business confidence fell two points but remains at eight points, above the long-term average of seven points.

Conditions were strongest in mining, and transport and utilities, and weakest in retail and construction.

Cashflow was strongest in mining, transport and storage, and recreation and personal services. It was weakest in retail, manufacturing and wholesale.

“Wholesale is declining because it’s basically a feeder into retail,” Oster says.

The report states: “The decline in retail conditions in October reflected sharp falls in trading conditions and profitability – employment held up at a zero net balance.”

“Manufacturing conditions also deteriorated in October, especially in trading and profitability, probably in response to the strength of the Australian dollar.”

“However, conditions in recreation and personal services remain solid despite pressures on inbound tourism.”

Oster says the strength of the personal services sector, which includes cafes, restaurants and take-away food, came as a surprise.

“People seem to be reluctant to spend in a shop but are happy to spend on their lifestyle,” he says.

“While we talked about transport doing okay, it’s actually doing very poorly at the bottom end. Anything to do with discretionary income at the bottom end – we’re finding the cashflow situation is not good.”

According to the survey, the Reserve Bank looks likely to raise interest rates again but not until the early months of 2011.