Another knock to business confidence in June with conditions remaining subdued, despite a small pick last month, according to the latest National Australia Bank survey of business confidence and conditions.
Of the two readings, confidence took the biggest knock, with retailing in a big squeeze on both measures.
That’s coming from cautious consumers who are saving more, and the impact of the higher dollar.
Static or falling asset prices (stocks and house prices) have contributed to the lack of confidence, according to the NAB.
But the biggest impact remains the blow to the economy delivered by the slump in first quarter growth and the impact on consumers.
And later today we should find that consumer confidence took a similar hit in June, with the carbon tax debate adding downward pressure of its own.
And don’t be surprised to find business and consumer confidence under more pressure in the July survey from the carbon tax and the problem in the eurozone which are starting to grip markets.
With the impact of the January floods and cyclones and their damage to demand and the economy generally still echoing, it’s no wonder business confidence contracted last month, especially in retailing and construction.
The National Australia Bank business confidence index fell to zero in June, down 6 points from May.
"The high Australian dollar, continued cautiousness of households and concerns about the global outlook appear to be eroding sentiment,’’ NAB’s chief economist Alan Oster said.
Overall, the confidence reading was the lowest since December, when businesses struggled with the impact of the early Queensland floods and the aftermath of the Reserve Bank’s November 2010 interest rate hike.
Small women’s wear retailer, Noni-B confirmed the slump in retailing demand with news of static sales in the June financial year, but a sharp drop in earning, from $3.9 million in 2010 to around $600,000 in the 2011 financial year.
The most recent Bureau of Statistics retail sales figured showed a 0.6% drop in May (but after a 1.2% jump in April).
The loss of confidence in construction can be put down to the ending of the government stimulus spending, even though housing approvals and home loan finance have edged higher in April and May.
Confidence in June in the construction industry fell 21 points in June to negative-14, retail and wholesale business were both negative-1, while manufacturing was negative-2, NAB said.
Business conditions
However edged up to a reading of 2 in June from zero in May.
"The variation in business conditions across sectors has become increasingly pronounced since late 2009," NAB said.
“This largely reflects weakening in the poor performers – similar to the 2000 slowdown.
"Orders weakened in June and continued to contract; the stocks index was also lower, implying an expectation of softer near-term demand.
"Capacity utilisation marginally higher in the month at above average levels.
"Based on average conditions for the June quarter, we estimate 6-monthly annualised growth in domestic demand and GDP of around 3%," the NAB said.
"Disparity between sector performance can be observed by comparing business conditions of the (currently) strongest performing sectors, mining, transport and utilities, recreation and personal service. And while overall business conditions rose to 2 in June, from zero in May, but retail saw a fall to a reading of negative-24 in June.
"Despite conditions improving a little in the month, the overall picture remains quite subdued, likely reflecting the negative impact the high Australian dollar on a number of trade-based industries, continued cautiousness of households and concerns about global growth, the NAB said.
"The mild uptick in the conditions index in June reflected improved trading conditions (up 3 to +4 points) and employment (up 3 to +5 points). Profitability was unchanged (-1).
"There is still strong evidence of a patchwork economy, with professional service-based industries and mining continuing to report relatively solid conditions, while retail is deteriorating sharply to concerning levels, and weakness is persisting in manufacturing, construction and wholesale."
Ahead of the RBA cutting its 2011 and 2012 forecasts next month, the NAB downgraded its 2011 gross domestic product growth forecast to 1.7% from 1.8% to account for ongoing weakness in the Australian economy, along with the impact of the carbon pricing scheme revealed on Sunday.
And growth is now expected to hit 4.6% next year down from the 4.8% estimate in May.
But it is not all doom and gloom:
the blow to confidence is temporary, as the small rise in conditions suggests.
And after the 1.2% negative GDP reading in the March quarter, the NAB’s growth forecast for the rest of this year indicates growth will be surging towards the end of the next quarter, into the three months to December and on into 2012.
If the NAB is right and growth ends up at 1.7% for the year, in reality that’s a growth rate closer to 3% over the next three quarters, which is solid.
Given that the current quarter will see modest growth, the improvement in the September and December quarters could be running at closer to 4%!
That’s a boom in Australian terms.
The NAB alludes to this in its forecasts:
"Strong export prices, mining investment and Queensland rebuilding expecte
