Once again the monthly survey of business conditions and confidence from the National Australia Bank has produced a mixed report – further emphasising that the surprise surge in the survey last October was a one off.
The spike in conditions and confidence in October, to 12 and 5 points respectively, has been rapidly forgotten as activity in business has slowed and confidence waned.
“The survey again shows a patchwork economy with little-to-no momentum building,” NAB said yesterday.
"In December, conditions eased for the second successive month after October’s surprisingly strong result.
"As a result, conditions are now a touch below the long run average."
The NAB reported that business conditions deteriorated in December and sentiment was flat, which in other words is more of what we saw in November and what orher reports are suggesting at the moment.
NAB found that confidence had picked up by less than 1 index point between November and December, although it rounded it up to take the index reading to 2 points from 1 point in the previous survey.
But the bank did point to a clear difference in confidence between the gloomier mining, construction and finance sectors, and transport and utilities where the drop in oil prices was contributing to improved profits.
The bank pointed out that the recent fall in commodity prices was having an impact on conditions and confidence.
Respondents were also not confident about business conditions, marking the index down 1 point to 4, a three month low.
And within this, there were falls into negative readings for employment and forward orders, while stocks also fell 1 index point.
“The survey again shows a patchwork economy with little-to-no momentum building,” NAB’s economists said in their commentary on the survey
The bank said the fall in conditions was across the board, but highlighted employment, which was the weakest and fell below long-run averages.
This pointed to "sub-trend employment growth", NAB said, despite official Australian Bureau of Statistics data showing a slight improvement in employment.
“By industry, the deterioration was particularly pronounced in construction and mining,” NAB said, although it suggested the building downturn reflected engineering works rather than house construction.
Given the way investment in these sectors has been falling and the downturn in commodity prices, such a development was to be expected.
NAB said its December survey showed business confidence at its lowest level since the pre-election spike in optimism in mid-2013.
However, it stressed there was a clear split between that gloomy sentiment in mining, as well as financial, property and businesses services (which fell sharply) and that in transport and utilities, where lower oil prices have improved profitability.
By state, business confidence took the biggest hit in Tasmania, Victoria and Western Australia, while conditions were seen declining sharply in Tasmania, Western Australia and South Australia.
Interestingly the NAB said, “The higher than expected budget deficit in the Government’s MYEFO (in December) did not seem to have a big impact on confidence”. So far the political instability in the government doesn’t seem to be having any impact on business confidence.
