The Australian economy’s recovery is accelerating, as two surveys yesterday indicate.
The ANZ Bank on job ads was very strong in February (see next story), while the National Australia Bank on business conditions and confidence, revealed a very solid February.
The NAB said business confidence was now back at its very high levels of late 2009, while business conditions, which held up in January, have improved again.
The NAB survey showed confidence rose 4 points (to +19 points) in February, "returning to the surprisingly strong levels recorded in late 2009 and, before that, last seen in May 2002.
"Increased confidence was particularly noticeable in mining, retailing, wholesaling and transport. Confidence lifted sharply in Western Australia over recent months.
"At the same time the rebound in business conditions (up 5 points to +8), largely reflected "better trading conditions and profitability (both up 5 points).
"The employment index eased marginally but labour market conditions remain firmly positive. At +8 index points, overall business conditions in February are not much below the strong conditions recorded in late 2009 (+10 points in December).
"Most sectors reported an improvement in business conditions, with mining showing a very sharp turnaround from January and recreation & personal services higher.
"Manufacturing and retailing while stronger in the month are trending down given recent weakness. Conditions were worse in wholesale & construction," the NAB said.
An encouraging part of the survey was a sharp recovery in forward orders in February, which had shown an oddly large fall in January.
"The fall in forward orders in January now appears anomalous ? the orders index was +6 points in February and has been positive in five of the past six months.
"It appears that stocks fell in February (the index fell to -4 points) ? given the implied strength of demand, some of this decline may have been unintended.
"Export sales improved but remain soft.
"Capacity utilisation declined to 80.7% and although it trended down marginally, it could be characterised as broadly unchanged.
"This is probably consistent with strong business conditions and forward orders being combined with slightly softer employment conditions.
"Labour cost pressures eased on a quarterly basis to 0.7% (0.9% last month), but are still above those recorded in the trough of the cycle in mid-2009.
"Annual wage growth is now 1.0% (0.8% in January). Quarterly purchase cost inflation eased to 0.3% (0.5% last month) to be running at 1.0% through the year," the bank said.
The NAB said the results of the survey had not caused it to alter its forecasts for the Australian economy.
"While the economy grew strongly in Q4, and in line with our forecasts, the February survey points to activity being a touch softer in Q1 of 2010.
"There has been some withdrawal of stimulus measures (the investment allowance and the first home owner boost) and interest rates were raised again in March.
"Nevertheless, there still appears to be considerable momentum in the domestic economy, with forward orders strengthening and high levels of business confidence.
"Public sector demand growth is growing strongly, the employment outlook is firmly positive and monetary policy is still accommodative.
"Our GDP forecasts remain at 3% for 2010 (or around 3.25% from December 2009 to December 2010), accelerating to around 3.75% in 2011. In financial year terms this equates to growth of 2.25% in 2009/10 and 3.5% in 2010/11.
"Applying our growth numbers suggests that unemployment will fall to around 4.75% by end 2010 and 4.25% by end 2011.
"The official estimate for unemployment in January of 5.3% is still broadly consistent with that track.
"We expect core inflation (as measured by the RBA’s preferred measures) to be 2.3% (a touch below to the RBA’s 2.5%) by end 2010, lifting to around 2.6% in late 2011 (also similar to the RBA).
"The RBA has flagged the need for further rises in the official cash rate and we expect it to be around 4¾% by end 2010.
"We now have rate rises pencilled in for May, August and November.
"That said, every meeting in 2010 is probably live and a decision will very much be data dependent.
"Nevertheless, both fiscal and monetary policy will need to become restrictive during the course of 2011 and so we have maintained our view of a peak in rates of 5.5% by late 2011,” the NAB concluded.
