We had further confirmation yesterday that the Australian economy is struggling to recover from the flood-related slowdown in the first quarter of the year and cautious consumers who are saving, not spending worrying retailers, but pleasing banks with their higher savings.
But the mining sector is continuing to enjoy buoyant conditions.
The National Australia Bank’s business confidence and business conditions surveys, issued yesterday, showed a weakening in both measures in May.
As a result, the NAB said that Australia’s near-term outlook looked softer with growth in 2011 now 1.8% (down from the previous 2.1% estimate).
The NAB said that stronger income, Queensland rebuilding, increased coal exports and mining investment likely to emerge in the second half of the year and next year with growth in 2012 now 4.8% (up from 4.4%).
It said the next rate rise (to 5%) is now expected in August and final adjustment (to 5¼%) towards end of year.
Business conditions deteriorated further in May (down 4 points to +1 index point); with the outcome suggesting that the domestic sector is struggling to recover from the flood-induced slowdown in the March quarter.
The conditions index is only a touch above the relatively weak levels recorded in February immediately following the floods.
The decline in the conditions index reflected broad-based falls in trading conditions (down 5 to +2 points), employment (down 3 to +1) and profitability (down 3 to 0).
The conditions index, at +1 point, is now 5 points below the long-term average level (of +6 points).
The multi-speed economy is persisting, with strength in mining in stark contrast to the weakness in retail, manufacturing, wholesale and construction.
This drop has left the condition index five points below the long term average level, but the confidence index was still positive.
Most industries experienced some worsening in conditions in May, with the big declines recorded in transport and utilities, wholesale and retail "deteriorating heavily", the bank said yesterday.
In contrast, mining conditions improved sharply to the strongest in the survey’s history at plus 50 points.
The report said that the weakness in conditions appeared to have dampened business confidence levels, though confidence remains quite varied across sectors.
"The high Australian dollar may be eroding sentiment in manufacturing and wholesale," NAB said.
NAB also reported that forward orders fell in May and continued to contract.
Capacity utilisation was marginally lower in May but remains above the long-term average, suggesting a probability of further tightening in the labour market.
The NAB summed up May this way:
- Trading conditions, employment and profitability all fell
- Business confidence also softened in May to be a little below its long-term average.
- Conditions in retail, manufacturing, wholesale and construction are still very poor, while mining conditions outperformed all other industries.
- The high Australian dollar may be eroding sentiment in manufacturing and wholesale. Mining and finance/business/property remain the most confident.
- Forward orders fell in May and continued to contract; stocks were also weaker but remained in positive territory.
- Capacity utilisation was marginally lower in the month but remains above the long-term average, suggesting a probability of further tightening in the labour market.
- If conditions reported in May persist, the survey would be consistent with 6-monthly annualised demand growth of around 3¼%, and GDP growth of 3% in the June quarter, which is in line with the decade average.
- Labour costs growth and price inflation were softer in the month.
Business conditions by industry
. A majority of industries experienced some deterioration in conditions in the month, with conditions in transport & utilities, wholesale and retail deteriorating heavily, while softer declines were recorded in manufacturing, finance/business/property and construction. In contrast, mining conditions improved sharply, where they were also the strongest (+50), and conditions in recreation & personal services were a little better. Conditions now weakest in retail (-12) and manufacturing (-11).
Business conditions by state. Business conditions continued to recover in Tasmania (up 9 to -8 points), and were also higher in Queensland (up 5 to +6 points). Declines in conditions were recorded in NSW, VIC and WA. While conditions remained strongest in WA and weakest in Tasmania, the variation in conditions across states is narrowing.
Business confidence by industry. Confidence fell most significantly in finance/ business/ property, followed by transport & utilities, wholesale and recreation & personal services, while construction was the only industry to record a (slight) improvement in confidence. Confidence was strongest in mining and finance/business/property (both +10 points), while confidence levels were negative in manufacturing (-2) and wholesale (-1).
Business confidence by state. Confidence fell very sharply in SA, and also declined significantly in Tasmania (on a small sample) – the only st
