The NAB’s latest survey of monthly business confidence and conditions produced the expected outcome: confidence crashed, while business conditions hardly moved.
It was another case of the headlines driving sentiment, while the reality of everyday business activity hardly moved.
But that’s not to say that the reasons for the drop in confidence, the fears about Europe, market instability, domestic political fears and concern about the US economy, might not have a longer lasting impact on activity if they persist, as they seem to be doing in September.
The NAB said business confidence dropped sharply in August, "with heightened global uncertainty, large falls in equity markets and the fear of debt market contagion".
"Confidence deteriorated across all industries, except recreation & personal services and construction.
"The largest fall in confidence was in finance/ business/property, reflecting recent volatility in equity markets.
"That said confidence levels remain significantly above GFC or recessionary lows. Clearly, much depends on how activity holds up.
"But could have been worse given global turmoil," the NAB added.
"The weaker outcome in the month was not unexpected, given that survey data were collected in the last week of August when global uncertainty was high, volatility in equity markets was particularly pronounced and debt contagion fears were much heightened.
“As such, the weakness in confidence in the month suggests that businesses are wary about the potential impact of global influences on activity within their own business but actual business outcomes were little changed during the month – albeit the trend to slower growth grinds on."
The business conditions index was a little weaker in August, declining by 2 points to -3 index points.
While activity remained fairly subdued in the month, businesses reported better much better conditions than reflected in their confidence readings.
Also conditions are at present indicative of an economy, overall, growing at a touch below trend – and not nearly as badly as during the GFC or indeed earlier this year during the Queensland floods.
The deterioration in conditions in the month reflected weaker trading conditions (down 4 to -3 points) and profitability (down 2 to -5 points), while the employment index recovered slightly from a sharp fall in the previous month (up 2 to 0 points).
The conditions index, at -3 points, is now 9 points below its long-term average (since 1997 for the Monthly Survey) of +6 points.
However, if the Survey comparison is taken back to the time-period of the full Quarterly Survey (1989), conditions are only a touch below the long-run average of +1 point.
The NAB said forward orders remained around current (depressed) levels and there was little change in capacity utilisation.
"Overall, the Survey’s activity readings would be broadly consistent with a lowering in underlying demand in the September quarter to around 2.75% (at an annualised rate) and GDP (ex coal) of 2.5%.
"Manufacturing, retail, wholesale and construction conditions remained very weak.
"Indeed manufacturing conditions continued to decline sharply and there was significant labour shedding in that sector (employment index -25 points). Against that, mining and the service sectors generally remained strong. Recreation & personal services also strengthened considerably (now the strongest sector.
"Labour costs growth remained firm in the month, after rising solidly in July. Final product prices rose modestly, and retail price growth was soft, after falling sharply in the previous month.
“Business conditions by state. Conditions fell significantly in SA (down 20 to -6 points), after rising solidly in the previous month, while conditions were marginally softer in NSW, Victoria and WA. Conditions were a little better in Queensland and Tasmania (on a small sample).
"WA was the only state to report positive conditions in the month (+10). In trend terms, WA remained the strongest state followed by NSW.
"In contrast, Tasmania remained by far the weakest, while Queensland, Victoria and WA recorded slightly negative trend conditions," the NAB said.
The NAB said the latest survey would not change its forecasts markedly and it sees the Reserve Bank sitting on rates, not cutting them.
But it said the unemployment rate forecast is marginally higher – "as restructuring hurts near term employment.
"GDP growth 1.9% in 2011 (up a touch given revised history in National Accounts), rising to 4.1% in 2012 (3.6% in 2011/12, 3.3% in 2012/13).
"Core inflation (ex carbon) to exceed 3% by mid-2013. The RBA to be on hold for a considerable period – with a final 25bp rise in current cash rate cycle expected in mid-2012."
Today we get the Westpac/Melbourne Institute consumer confidence survey for last month.
It will show a fall in consumer confidence, if the NAB business survey is any guide.
