Business conditions and confidence remain weak, according to the latest monthly survey from the National Australia Bank.
Despite a slight improvement in November, the bank said business conditions remained soft and confidence dipped: both are below their long-term averages.
Business conditions improved slightly (by 2 points) in November.
"Profitability lifted out of negative territory to +2 points, employment slipped slightly to +4 points and trading was unchanged, also at +4 points.
"The overall conditions index at +4 points remains below the long-term average reading (of +6 points)," the NAB reported.
Business confidence declined for the third successive month, down another 2 points to +6 points, a tad below the long-term average (+7 points).
"Profitability emerged from negative territory (only just), but employment weakened marginally.
"Mining conditions fell sharply (profitability), but confidence rose to its highest level since December 2005.
"Conditions in construction and recreation picked up but retail and wholesale drifted further into negative territory (worst retail reading for two years).
"Forward orders are still negative, stocks are soft and capacity utilisation drifted down again," the bank said.
For the economy as a whole, the NAB said the survey was "consistent with an implied annual rate of around 3% in Q4 – implying annualised growth in non-farm GDP near 2½%.
"Retail prices remain weak and labour cost pressures appear unchanged.
"Finance availability marginally tighter in November."
The bank said its Australian growth forecasts has been reduced to 2.7% in 2010 (was 3.2%), reflecting a weak Q3 and further slowing in demand in Q4.
"We still expect growth around 4% through 2011; giving year-average 3.6% (was 3.7%).
"(The) Survey shows no signs of sustained pick-up by mid-December quarter.
"Construction sector indicators remain soft and retail / wholesale very depressed.
"The impending mining investment and export boom should provide a spectacular ride ? but the reality is that the train is still yet to leave the platform."
The bank said the "RBA probably surprised by recent weakness.
"Next (interest rate) hike to 5% now expected in May (previously February) reaching a peak of 5.25% by August 2011.
"Continued strong exchange rate outlook (AUD to peak around 1.05 USD) should keep inflation under better control.
"Core inflation to edge up and stay around 2.75% through to end 2012."
The NAB said for the world economy, growth "continues at nearly 5% despite the tension in financial markets associated with the sovereign debt problems in the Euro-zone periphery and the uncertainties over US economic policy.
"Recent indicators point to faster growth in key developed economies after a soft patch in the middle of the year, but there is now evidence that the rapid growth in emerging economies is slowing.
"We have revised our numbers for Japan, the Euro-zone, India and Non-Japan Asia to take account of policy changes, new data and coverage changes but the picture has not changed."
Looking at the survey, the NAB said:
Conditions deteriorated sharply in mining and also declined in retail, wholesale, finance/ business/ property and transport and utilities. However, conditions improved strongly in construction, recreation and manufacturing.
Conditions in November were strongest in transport and utilities (+26), recreation (+26) and mining (+15) and weakest in retail (-16), wholesale (-10) and manufacturing (0).
(Note that the ABS measure of retail trade includes cafes, restaurants and take-away food that are defined as part of the recreation and personal services in the NAB survey.)
Cash flow was strongest in transport/ utilities and recreation and personal services and weakest in retail (negative) and construction.
It is likely that sharp fluctuations in commodity prices have affected the mining sector, while the improving global production outlook may be responsible for the currently high level of mining confidence.
Oscillations in construction industry conditions may reflect the different impacts of a weak building sector and a strengthening engineering construction sector.
Within the construction sector, residential construction conditions appear weak.
Ongoing poor retail conditions appear to be weighing on the wholesale sector, where conditions have declined steadily from +7 index points in July to -10 in November.
Despite the weakness in retail and wholesale, transport and utilities conditions remain among the strongest.
However, the September quarter SME survey showed that smaller transport operators (probably mainly road freight firms associated with wholesaling) are struggling while conditions are much better for larger operators (that may be more heavily engaged in transporting bulk commodities).
Although manufacturing conditions improved overall, the sector remains weak (0 index points).
Those parts of manufacturing associated with construction (non-metal mineral products and wood products) as well as petro-chemicals were noticeably weak.
Conditions in recreation and personal services remain solid despite pressures on inbound tourism
