Business confidence fell sharply in May, as expected, thanks to the mixed flow of news and events in the past month.
The NAB said yesterday in its May survey of business the fall in confidence was the third monthly fall in a row and it was now running at levels close to the lowest in a year.
In contrast business conditions were mixed to weaker, but not as weak as the loss of confidence.
The factors for the fall, according to the NAB, were a combination of the offshore doubts and falling commodity prices and the Australian dollar hit market confidence and gained headlines, as did the brawl over the resources tax and a general sense of change in the economic climate.
”This broad-based reversal in confidence partly reflects disturbances on global financial markets, including concerns about sovereign debt, and associated declines in Australian equity prices,” NAB chief economist, Alan Oster, said in yesterday’s statement and commentary.
The fall will no doubt be repeated in the May consumer sentiment survey to be released later this morning by Westpac and the Melbourne Institute.
But the survey threw up come conflicting results; NAB said while confidence was down in mining, conditions had improved in the same sector, for example.
The NAB said the fall in confidence was especially evident in mining, wholesale and manufacturing. "Global financial market instability and sharp declines in the AUD and equity prices were probably contributing factors," the NAB reported.
The survey revealed that despite the fall, "confidence was strongest in manufacturing, followed by finance, business & property services. Confidence was weakest in transport, recreation & personal services and wholesale. Confidence levels across industries are now much more uniform than in the recent past."
In contrast, business conditions across industries were quite mixed.
"Mining, construction and transport reported the strongest conditions, but conditions were very weak in retail. Conditions improved strongly in mining (particularly profitability, possibly reflecting higher contract prices for commodities) and construction (across all three components). Conditions in transport also improved solidly. However, conditions declined in recreation & personal services, finance, business & property services, and wholesale.
"Business confidence fell for the third month in a row and, at +5 index points, is now below both its long-run average (+7 index points) and the business conditions index.
"Confidence fell sharply in mining, presumably partly in response to the announcement of the resource super profits tax), wholesale and manufacturing.
"The tourism-exposed recreation & personal services and transport sectors declined further: although the $A declined, financial market instability may have been a concern.
"Business conditions eased for the second successive month with the overall index down to +6 index points (equal to its long-run average).
"Most of the fall was accounted for by declining profitability (down 6 points). Employment fell by 1 point and trading conditions actually rose marginally (1 point)."
As a result the NAB has cut its Australian economic forecasts, "reflecting consumer weakness, lower equity and commodity prices, weaker forecasts for public final demand and soft survey results.
"GDP growth now expected to be 2.75% in 2010 (was 3.5 %%) and 3.5% in 2011 (was 4.25%). "Momentum from higher terms of trade delayed. Unemployment to edge just below 5% in late 2010 and 4.5% by late 2011."
The NAB says the RBA will now delay interest rate rises "until late 2010, then two rises to 5% by end of year. For 2011 we still see 6% as the rate peak. Inflation at 2.75% by the end of this year and unchanged in 2011".
The survey said trading and employment conditions were broadly unchanged but profitability was weaker.
"Conditions in mining and construction up strongly, but recreation, finance and wholesale down sharply. Business conditions strongest in mining, construction and transport, and weakest in retail.
"Stocks, forward orders and capacity utilisation all edged lower, but the survey implies growth just below 4%.
"Credit (was) a little tighter than in April.
"Retail and final product prices beginning to rise and retail profits at low levels.
"Global growth forecast at a touch over 4% in 2010 and 2011.
"India, China and other East Asian economies continue to drive the recovery but US prospects also look better.
"European growth outlook revised down, but Japanese growth revised higher (as it shares in the strong export recovery seen across East Asia).
"New orders fell into negative territory, with heavy falls in retail, wholesale and transport orders offsetting rises in manufacturing, construction and mining.
"Stocks also declined, particularly in retail. This may be a response to the apparent involuntary stock build in April and is consistent with attempts by retailers to reduce stocks in line with weaker orders."
"Capacity utilisation slipped to 81.7% (82.0% last month). Capacity weakened sharply in transport, recreation and personal services and wholesale, but rose in construction, mining and (unexpectedly) retail.
"Capital expenditure increased sharply by 9 to
