Australian business confidence in August recovered to levels last seen in April, according to the latest National Australia Bank monthly survey, but business conditions were unchanged – at levels still well under those in the first half of 2010.
The NAB survey showed that employment and sales weakened, with employment at its lowest point for the year, falling 4 points, but remaining positive.
The bank said the survey showed that Australia is "now at the conjunction of vastly higher bulk commodity prices, significant increases in resources sector investment activity and a vanishing fiscal stimulus in the building construction sector.
"There is the prospect of an increasing multi-speed economy, with mining growing strongly, internal trade subdued and construction resources being shifted from education projects towards mining and housing.
"That raises the risk that the private sector does not replace the fiscal stimulus quickly enough to avoid a slowdown," the bank suggested.
Confidence improved strongly in manufacturing and wholesale but declined in mining and transport. Mining confidence may have been affected by concerns about Chinese growth and the initially indeterminate result of the federal election, which failed to provide an immediate assurance that the resource rent tax would be scrapped. Confidence levels are now more uniform across industries, from the highest (wholesale +21) to the lowest (construction +2).
How that sits with more than 53,000 full time jobs created last month, according to the Australian Bureau of Statistics jobs figures for August (which was one of the highest monthly totals for some time), is one of the great mysteries of the economy at the moment, likewise the NAB survey finding that retailing again weakened.
And yet, as the NAB survey has reported retailing getting weaker, sales have been rising (up 0.4% in June and 0.7% in July), according to data from the Australian Bureau of Statistics.
But the NAB said there was a definitional reason for the apparent discrepancy (see below).
The NAB said trading declined 1 point, but profitability rose 1 point.
And the conditions index overall was at plus 5 points, just below the long term average reading of +6 points.
However the NAB said business confidence rebounded 9 points in August, following three months during which overseas financial turbulence and policy uncertainty contributed to more subdued readings.
"However, confidence has not returned to the euphoric levels recorded late last year and early this year," NAB said.
(And yet the economy is doing better than it was a year ago, with growth higher, inflation lower, job creation strong and investment on the rise across many industries, not just resources).
The NAB said the flat overall business conditions result obscured widespread changes in conditions in individual industries.
"Conditions improved in manufacturing, recreation and construction, but deteriorated in mining, finance, transport, wholesale and retail.
"Conditions remain strongest in transport (+22) but recreation (+18) is now ahead of mining (+14).
"The weakening of the mining sector may be partly a reaction to an easing from the exceptionally strong levels of exports experienced by coal and mineral ore producers in June.
"At the other end of the spectrum, conditions remained weakest in retail (-14), construction (-5) and wholesale (-1).
"Retail conditions worsened because of falling sales and profitability."
The NAB pointed out that "although ABS retail activity appears stronger than our survey, the ABS measure includes cafes, restaurants and take-away food that are defined as part of the recreation & personal services in the NAB survey".
"A new survey question indicates that construction and retail experienced the poorest cash flow conditions, while wholesale, recreation and transport were strongest. These results are broadly in line with the business conditions outcomes."
So what does this mean for the economy as a whole over the next year to 18 months?
The NAB said it had pushed its Australian growth forecasts "up a touch to 3.25% (from 3%) in 2010 due to strong Q2 outcome (especially consumption)".
"Survey (conditions and forward orders) point to domestic sector softening in H2 with passage of stimulus, but external sector on cusp of new boom from higher commodity prices and strong capex intentions."
Growth next year was unchanged at 3.75% and at 4.25% for 2012.
The bank said the labour market was starting to tighten with unemployment "a tad below 5% in late 2010 and 4.75 by late 2011".
And it said interest rates were "on hold until early 2011 but peak still at 5.5% (in late 2011)", but added there was "a risk of a "November trigger" if there was a bad September quarter CPI.
It saw rates rising by one notch (0.25%) in each quarter of next year.
The bank said core inflation was seen at 2.8% by end 2010 and 2.75 by the end 2011, so no real inflationary breakout.
"The survey is consistent with domestic demand running at an annual rate of around 3% in Q3 – well down from rates of growth reported in Q2.
"Exports, however, show signs of improvement.
"Price inflation remains subdued with renewed discounting squeezing re
