Confidence

You may remember that recently NAB had business confidence at 6 year highs which seemed like a ridiculous level given the state of the global economy. I mentioned at that time that the confidence, being subjective, probably related more to the fact that we haven't fallen into a huge hole rather than the future holding the best conditions seen in the last 6 years. NAB's latest Monthly Business Survey came out yesterday showing that confidence was still high but had started to drop back. Forward orders, a more tangible measure, have had a good showing which is reasonably positive for the future.

The key facts are below:


September Survey – Key Results

• Business confidence, after the recent surge, fell 4 points to +14 points in September – albeit still above the longer average level. That reading predated the RBA rate decision last week. The fall was heavily concentrated in manufacturing, wholesale and the retail sectors. The only sector to strengthen was construction (probably infrastructure related).

• Business conditions edged lower – down a point to +3 index points (still a touch below the long run average readings). That reading however reflected more significant falls in trading (down 4 to +8 points) and especially profitability (down 7 to +4 points). The offset was a surprisingly strong reading for employment (up 10 to -1 index points). The readings across industries were again mixed. Manufacturing, finance and mining were strong improvers (no doubt reflecting global developments and local infrastructure demands) while wholesale and transport fell heavily. Construction fell moderately and retail was flat. Overall suggesting softness in cyclical sectors as the stimulus to consumers fades.

• Forward orders rose significantly – up 9 points to an overall reading of +7 points (the highest reading since November 2007). Again however the strength was in mining, manufacturing and construction – with softness in cyclical sectors. Capacity utilisation edged down a point to 79.9% while stocks continued to be run off, albeit less aggressively than recently – with an index of -5 (up from -9).

• Labour costs increased modestly, up 0.5% on a quarterly basis (0.3% last month) with a record low reading of 0.5% in the year to September. Purchase costs, in the face of the stronger AUD, eased further, with the 12 month to rate slowing 2.9% - the lowest since September 2004. Economy wide prices increased by only 0.1% with the 12 month to rate slowing to 1.2% (1.4% previously). Critically, retail price increases have finally also moved sharply lower– down -0.2% in September, the lowest reading since July 1997 and the 12 month to rate slowing to 3.4% (3.8% previously).

• Credit availability eased significantly – with the difficulty in finding finance index easing to 7 points (18 previously). This reflects an easing across all categories. Also there was a sharp jump in those not wanting credit (up 11 to 41%).