More gloomy news on corporate conditions and confidence from the monthly business survey from the National Australia Bank.
The June survey results, released yesterday showed business confidence retreated in June after the one hit wonder of the post-election spike in May while overall conditions edged higher but remain at low levels.
The NAB’s index of business conditions, a monthly survey of about 550 companies, rose 2.0 points to +3 while its index of confidence fell 5.0 points to +2.
In its May survey NAB economists said retail sector was “clearly in recession” and yesterday the June survey said there were few indications that general business conditions will improve any time soon.
“The retail sector remains the weakest of all industries with levels of business conditions last seen in the GFC,” the NAB said. This is particularly evident in retail, where we now have significant evidence of weak household consumption across a range of measures.”
The report says retail prices had “an outright decline in the month” because households were cautious “in the face of high debt levels and pressure on budgets after increased spending on ‘essentials’ in recent years”.
“This suggests that activity in the sector is going backward – and in line with other indicators suggesting both price and volumes growth has remained weak, while margins continue to face pressure.”
NAB’s chief economist, Alan Oster said corporate sentiment had been boosted in the May survey – when business confidence gained 7.0 points – by the federal election result on May 18 and the Reserve Bank of Australia’s interest rate cut on June 4.
“Business confidence appears to have unwound its spike in May, which we think was driven by a short-term election bounce and increased optimism around a renewed interest rate easing cycle by the RBA,” Mr. Oster said in commentary with the monthly survey.
“Forward-looking indicators were mixed in the month, but continue to suggest that business conditions are unlikely to improve significantly in coming months. In addition to below average business confidence, forward orders remain well below average (and negative).
“Capacity utilisation saw a more positive outcome, increasing sharply in the month, with a number of industries seeing an improvement. However, it remains below the highs seen in 2018 and remains lower in trend terms.
“Forward-looking indicators suggest that there is unlikely to be a material improvement in conditions over the next few months with forward orders remaining very weak. This suggests the pipeline of demand is weak and is consistent with below average confidence” Mr. Oster said.
“The employment index rebounded to be well above average and is important in the context of the outlook for the labour market,” Mr. Oster said, although he added the positive news was “offset by other measures in the survey pointing to low inflation.”
