Australian business conditions continue to improve, despite the impact of the federal budget, weak trading conditions for many retailers and wholesalers and continuing job losses.
In fact the National Australia Bank said yesterday, its monthly survey of business conditions and confidence was better than expected.
Conditions hit a five month high, but they are still below the survey’s trend line.
The dollar rose on the news and almost regained the 94 US cent mark in local trading.
It moved over that level in offshore dealings and remained 94.02 US cents in early Asian trading Wednesday.
And the NAB said confidence among businesses saw an "unexpected rise" in June.
NAB said its index of business confidence ticked up a point to +8 in June, just above the series’ long-run average.
"Business confidence recorded an unexpected increase in the month, with firms apparently shrugging off the sharp deterioration in consumer confidence that followed May’s Federal budget," NAB’s chief economist Alan Oster said in yesterday’s report.
"Stronger sales are contributing to elevated confidence levels, with the survey suggesting this has encouraged firms to invest and rebuild their inventories," he said.
"However, capacity utilisation eased further from relatively low levels."
‘Unexpected rise’ in business confidence
Business conditions improved across industries, with construction in the lead as home building gathered steam (a situation supported by improving levels of building approvals).
In fact the NAB said the survey’s business conditions index rebounded by 3 points to +2, the highest reading since January.
Its measure of sales climbed 5 points to +7, while that for profitability rose 6 points to +3 – all fairly positive.
"Nevertheless, conditions remain below the long-run average for the monthly series, which along with soft conditions in wholesale (a bellwether industry), suggests little momentum for domestic demand in the near term.
"Although conditions improved for all industries, levels vary significantly – service industries remain the stand out, followed by construction (wholesale and manufacturing are weakest). Sales and profits are stronger, but employment is yet to respond
"Our wholesale leading indicator suggests weak underlying conditions, pointing to further below trend economic growth in the second quarter of 2014 – and little near term improvement in prospect in demand," the NAB said yesterday.
NAB’s survey suggested inflation would be no threat to the policy outlook, with firms reporting a moderation in labour costs and purchasing prices. Retail inflation also remained at low levels in June.
One area of softness was in employment, where the survey’s measure dipped to -3 in June led by weakness in the mining and wholesale sectors.
That will be tested tomorrow by the June jobs and employment report tomorrow from the Bureau of Statistics.
Monday’s job ads report from the ANZ was also stronger than expected with a 4.3% rise in June from May.
Job ads are now 6% higher than a year ago.
The NAB said the report had little impact on its forecasts for the economy.
"NAB forecasts unchanged with unemployment to reach 6.25% by late 2014. Rates still expected to be on hold till late 2015," the bank said yesterday.
The Westpac/ Melbourne Institute consumer sentiment survey is out later today.
