It’s called the Goldilocks condition, not too hot and not too cold.
Enough to keep the bears away and the bulls on their toes, and so it is with the picture of the Australian economy yesterday from the National Australia Bank.
According to the bank’s latest monthly survey, Australian business conditions improved in September despite a slight drop in confidence.
The NAB said business conditions rose to seven index points in September, up from five the month before, and still above the zero level that separates optimists from pessimists.
Mining (naturally) and utilities and transport were travelling very well, not so well were wholesale and retail.
However, business confidence eased, but "remains solidly positive", according to the bank.
"Business confidence slid just 1 point in September, and appears to be consolidating at around +10 points," the NAB commented.
"This is higher than the long term average of +7 points. Reduced turbulence in European financial markets may have played a role in the improvement in sentiment.
"The survey reflects the multi-speed economy now emerging, with conditions much stronger in mining and transport than in retail and manufacturing, while construction (might be transitioning) from dependence on public to private sector demand," the bank speculated.
"Trading and profitability are exceptionally strong in mining but negative in retailing.
"Manufacturing has reported negative employment conditions for four months in a row, probably because its trade-exposed sectors have been pressured by slowing global growth and then by the appreciating AUD.
"Construction appears to be transitioning to stronger growth, with a sharp rise in trading conditions and profitability in September.
"This, and the strength of the transport sector, may be an early sign of stronger investment in the minerals sector," the bank said.
It said trading activity rose strongly and profitability improved and although employment softened slightly it remained positive.
"September: trading rose 8 points, profitability rose 2 points while employment edged down 1 point. Employment is at a new low for 2010 but still in positive territory. The overall index at +7 points is still close to the long term average reading (of +6 points)."
The bank said industries contributing to the improvement in overall conditions included mining, construction, finance, retail, and transport & utilities. Conditions however deteriorated in manufacturing, wholesale and (marginally) recreation.
And conditions in September were strongest in mining (+57) and transport & utilities (+25).
"Although mining sector conditions have been particularly volatile over recent months, the sector’s trend has remained firmly positive (currently +33)," the bank commented.
But conditions remained weakest in retail (-4), wholesale (-4) and manufacturing (+1), which has probably been affected by the strength of the AUD.
"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," the bank said.
"Forward orders, stocks and capacity utilisation all improved, suggesting that the economy may be starting to emerge from the weakness in the early part of the September quarter. The survey is consistent with domestic demand running at an annual rate of around 3¼% in Q3 – well down from rates of growth reported in Q2.
"Price inflation remains subdued, particularly in retailing. Labour costs continue to build. Finance availability appears to have eased in September.
"Although conditions improved in construction, it continued to experience the poorest cash flow conditions. Cash flow was also weak in manufacturing, retail and transport & storage. Strong cash flows were reported in wholesale, mining and finance.
"Regionally, business conditions remain strongest in WA, but Queensland and NSW improved strongly in September while conditions in Victoria eased back (although remaining positive)."
