Call us on 1300 794 893

Business News

Business conditions ease ahead of Budget

| More

Published on: Tuesday, May 13, 2014

by Savanth Sebastian

Business conditions and confidence: The NAB business confidence index rose from +4.4 points to +5.8 points in April. The business conditions index eased from +0.6 points to +0.3 points. The survey was conducted from April 24-30.

The average credit card balance fell by $38.20 (1.2 per cent) to $3,168.0 in March. The average credit card balance was 2.7 per cent below a year ago.

Petrol prices lifts: According to the Australian Institute of Petroleum, the national average Australian price of petrol rose by 5.7 cents per litre to 155.9 cents a litre in the week to May 11.

Petrol prices hit the high point in the discounting cycle late last week and are likely to ease over the coming week, drifting to the lows by early next week.

The NAB business survey has components that track broader economic variables such as employment, exports and consumer spending. Businesses can benchmark their experiences against industry and state results. The credit card figures have implications for retailers and financial institutions. The petrol figures have implications for retailers, especially petrol marketing groups.

What does it all mean?

Aussie businesses are still treading water. The good news is that the majority of businesses still feel confident despite all the uncertainty about the upcoming Federal Budget. However the bad news is that most businesses are seeing a harsher reality when it comes to the financial metrics with conditions more mixed.

Across the sub-indices, trading conditions were decidedly weaker over the past month. In addition, after improving for three months, forward orders are now going backwards, while overall profitability also turned negative for the first time in five months. Business purchase costs continue to outstrip selling prices and as such are likely to add to weaker profitability in coming months. The one degree of encouragement was that inflationary pressures are benign, ensuring that the Reserve Bank can keep interest rates at current levels over the next few months.

There is no pressing need to move interest rates in any direction. The Australian economy is forming a solid base for future growth. But the upcoming Federal Budget; and subsequent impact on economic activity, will be crucial focal points in coming months.

The volatility in petrol prices across capital cities doesn’t appear to be helping anyone, just confusing motorists and making life difficult for retailers. The good news is that wholesale prices are falling, and coupled with the discounting cycle hitting the high point over the weekend; it is likely to result in some much needed relief ahead for motorists.

Importantly for motorists the national average wholesale (terminal gate) unleaded petrol price has fallen by over two cents over the past week and should lead to a 2-3 cents fall in fuel prices over the next week.

Aussies are showing no sign of ditching their new-found virtue of financial conservatism. Credit card debt is subdued, fees are being avoided and consumers are more likely to use technology to make price comparisons before parting with their hard-earned money. While we are using our credit cards more often, we are paying off the debt, with the average balance down by over 2 per cent on a year ago.

What do the figures show?

National Australia Bank Business Survey:

The NAB business confidence index rose from +4.4 points to +5.8 points in April. The business conditions index eased from +0.6 points to +0.3 points.

The index of trading conditions weakened from +3.5 points to +2.9 points; employment improved from minus 1.1 points to + 0.3 points; profitability weakened from +0.6 points to minus 1.6 points; and forward orders weakened from +2.1 points to minus 5.5 points.

Inflationary pressures were generally benign in April. The monthly reading of labour costs rose at a 0.6 per cent quarterly rate in April after a 0.7 per cent rise in March. Purchase costs rose at a 0.6 per cent quarterly rate in April, after a 0.5 per cent rise in March. Final product prices rose by 0.2 per cent after a 0.3 per cent rise in March. Retail prices rose at a 0.1 per cent quarterly rate in April, up from the minus 0.3 per cent quarterly rate in March.

Capacity utilisation lifted from 80.2 per cent to 80.4 per cent in April, below the long-term average of 81.2 per cent.

The proportion of firms reporting that they did not require credit rose from around 62 per cent in March to around 70 per cent in April.

Credit & debit card lending:

Figures released from the Reserve Bank show that the average credit card balance fell by $38.20 (1.2 per cent) to $3,168.00 in March. The average credit card balance was 2.7 per cent below a year ago. In smoothed terms (12 month average) the average balance was down by 2.6 per cent, unchanged on February but slightly down from the 2.7 per cent fall recorded in November (the biggest fall in 19 years of records).

Of credit cards attracting interest charges, the average outstanding balance fell by $82.50 in March to $2,211.90. The average balance accruing interest is down by 3.6 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 5.3 per cent – just shy of the record 5.5 per cent fall posted in the February.

The average credit card limit fell by $1.30 to $9,127.10 in March. The average credit card limit rose by just 0.4 per cent in the year to March.

The average number of transactions on credit cards in March was 10.7, up from 9.8 in February due to seasonal reasons. In smoothed terms the average number of credit card transactions was 10.53 in March – a record high. The average purchase on a credit card was $135.83 in smoothed terms (average for the year to March).

The average number of transactions on debit cards in March was 7.9, up from, 7.1 in February. In smoothed terms the average number of credit card transactions was 7.73 in February – a record high. The average purchase on a debit card is $55.55.

The number of credit card cash advances rose by 12.7 per cent in March (value up by 9.4 per cent). In smoothed terms, credit card advances are up 0.4 per cent on a year ago after having consistently fallen for the past five years.

Petrol prices

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 5.7 cents a litre to 155.9 c/l in the week to May 11. The metropolitan price rose by 7.9 c/l to 155.7 c/l, while the regional average price rose by 1.0 cents per litre to 156.2 c/l.

Average unleaded petrol prices across states and territories over the past week were: Sydney (up 10.4 cents to 155.3 c/l), Melbourne (up 10.9 cents to 154.8 c/l), Brisbane (up 12.4 cents to 160.3 c/l), Adelaide (down by 2.3 cents to 150.6 c/l), Perth (down by 0.6 cents to 152.7 c/l), Darwin (unchanged at 173.0 c/l), Canberra (down 0.1 c/l to 157.3 c/l) and Hobart (unchanged at 160.8 c/l).

Today, the national average wholesale (terminal gate) unleaded petrol price stands at 142.2 c/l, down around 2.1 cents over the week.

Last week the key Singapore gasoline price rose by just US$1.80 to US$120.60 a barrel.

In Australian dollar terms the Singapore gasoline price rose by US76c or 0.6 per cent last week to $128.82 a barrel or 81.02 cents a litre.

Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, Adelaide and Perth peaked (hit the high point in the cycle over the last weekend). Prices should ease over the coming week and head towards the low point early next week.

What is the importance of the economic data?

The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for interest rates and investors?

Business confidence levels are good without being great, while conditions are decidedly more mixed. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines.

Housing construction remains the key driver of the Australian economy. However the speculation of $10 billion in infrastructure projects in addition to a road funding plan of $80 billion over the next six years should boost broader employment and economic growth over the medium term. But the risk is that the Budget cuts, to health and benefit payments serve to erode confidence and spending.


New on Switzer

blog comments powered by Disqus

  THE SWITZER FEED
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300