A small downturn in business confidence and conditions: ‘situation in economy back to normal’ would be the headline from yesterday’s National Australia Bank business survey for September.
So with that in mind don’t be surprised if there’s a similar fall from the six year high levels in the latest consumer confidence survey due to be released later this morning.
That would have been taken on or about the time of last week’s rate rise and solid employment figures.
The NAB survey was taken before the interest rate rise from the Reserve Bank.
So the ending of the surge in business confidence since around May-June happened without outside factors influencing it.
The small dip therefore should be viewed as a rest, possibly to go lower in the next survey in reaction to the rate rise and other data flow.
At the same time the bank said yesterday the survey showed that business conditions were also weaker, thanks to lower sales and profits and, but that was offset by a stronger outlook for labour.
"Having seen a remarkable surge in confidence in the last 6 months it was probably inevitable that some weakening was due.
"Certainly our view was, and still is, that the readings for confidence are somewhat "unrealistic’ – especially when compared to actual business conditions.
"In that context the 4 point fall in confidence in September is relatively moderate," the NAB commented in the survey.
The survey showed that business confidence, after the recent surge, fell 4 points to +14 points in September – "albeit still above the longer average level", The NAB said.
"That reading predated the RBA rate decision last week. The fall was heavily concentrated in manufacturing, wholesale and the retail sectors.
"The only sector to strengthen was construction (probably infrastructure related).
"Business conditions edged lower – down a point to +3 index points (still a touch below the long run average readings).
"That reading however reflected more significant falls in trading (down 4 to +8 points) and especially profitability (down 7 to +4 points).
"The offset was a surprisingly strong reading for employment (up 10 to -1 index points).
"The readings across industries were again mixed.
"Manufacturing, finance and mining were strong improvers (no doubt reflecting global developments and local infrastructure demands) while wholesale and transport fell heavily.
"Construction fell moderately and retail was flat. Overall suggesting softness in cyclical sectors as the stimulus to consumers fades."
The NAB said that wage pressures "were still low" despite the stronger outlook for labour.
"The slowdown in wage costs is also very broad based across industries.
"Not surprisingly the weakest wage cost increases continue to be in manufacturing and the finance sector – where annual wage costs are now lower than this time last year.
"Perhaps more surprisingly construction costs have also essentially stalled over the past year.
"Very low rates of increases are now also being reported in wholesaling, while retail and mining costs are stabilising.
"Purchase costs continue to track down (high AUD). Importantly, retail prices slowing sharply.
"The big news on prices in the September Survey related to retail prices, which have remained surprisingly sticky in the last 6 months," NAB said.
"However, in September retail prices fell (-0.2%) for only the third time in the history of the Survey and was the lowest result since July 1997.
"In brief it seems that at last retail prices are reflecting the slowdown in demand.
"As a result the 12-month-to rate of retail inflation fell from 3.8% to 3.4% in September.
"While these rates are still uncomfortably high we continue to see significant inroads made by these outcomes over the next year or so."
"Forward orders also stronger – mainly mining, manufacturing and infrastructure. But no change in economy wide capacity utilisation and de-stocking continues. Survey is consistent with strong domestic demand (near 4% annualised), activity likely to increase only marginally in Q3."
The bank said its domestic economic growth remained unchanged.
"We still expect a flat H2, meaning growth of 0.6% in 2009 and 2.1% in 2010 (albeit that implies growth of 3% through the year – much the same as the RBA).
"Unemployment still to peak at 6.7% in mid/late 2010 with core inflation at around 2%."
The bank said it saw the Reserve Bank continuing to move rates – "we expect another 50 points by year end. Our longer term rate path unchanged – implying 4¼% by end 2010 and 5½% by end 2011".
So overall, this is a healthy reaction. An unhealthy one would have been another big rise in confidence and perhaps a broader improvement in business conditions.
That would have signalled the need perhaps for another rate rise in November.
As it is the economy is still going well.
