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Businesses respond to global uncertainty

Craig James
Wednesday, October 15, 2014

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by Craig James

Business conditions and confidence:

The NAB business confidence index fell from +7.5 points to +4.9 points in September.

The business conditions index eased further from 4-year highs, down from +3.1 points to +0.9 points. The survey was conducted from September 24 to October 3.

Consumer confidence lifts: The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.1 per cent in the week to October 12.

The estimate of family finances over the next year was up from +21 to +25 – a six month high.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The tourism data is important for airlines, travel groups, transport companies and retailers.

What does it all mean?

Business confidence is down; consumer confidence up. It is a bit like that at present – uncertain. There are concerns about the health of the global economy, especially Europe.

In addition there are the jitters about Ebola and when the US Federal Reserve will lift interest rates.

The sharemarket has been wobbling and the Aussie dollar has been softening. And to cap it all off, there are questions about whether Australian housing investors are over-exuberant.

Given that rather uncertain macro backdrop, the latest improvement in consumer confidence is encouraging.

Households have shrugged off the global economic concerns and even the recent slide in equity markets with confidence levels holding just shy of the best levels in seven months.

In addition the latest Roy Morgan Consumer Confidence survey saw that Aussie households’ views about their finances over the next 12 months improved to the best level in six months – a result that bodes well for retail sales over coming months.

While business conditions have softened in the past two months, it is from the best levels in four years.

Overall it is clear that the Aussie economy remains in good shape with job ads rising, inflationary pressures contained, home building buoyant and interest rates on hold. The Reserve Bank wouldn’t be fazed about the short term volatility in business and consumer confidence.

Of interest is the latest reading on business borrowing where around 75 per cent of firms say that they have no interest to take on additional debt at present.

What do the figures show?

National Australia Bank Business Survey:

The NAB business confidence index fell from +7.5 points to +4.9 points in September.

The business conditions index eased further from 4-year highs, down from +3.1 points to +0.9 points.

The index of trading conditions rose from +6.2 points to +6.5 points; employment weakened from -0.7 to -4.1 points; profitability weakened from +2.7 points to +0.1 points; forward orders weakened from +0.3 points to -1.1 points.

Inflationary pressures were contained in September. The monthly reading of labour costs rose at a 0.8 per cent quarterly rate in September after a 0.8 per cent rise in August. Purchase costs rose at a 0.4 per cent quarterly rate in September, after a 0.5 per cent rise in August.

Final product prices were flat (unchanged) in September after a 0.2 per cent rise in August. And retail prices fell at a 0.7 per cent quarterly rate in September after a 0.2 per cent rise in August.

Capacity utilisation eased from 80.6 to 80.2 per cent in September, below the long-term average of 81.2 per cent.

The proportion of firms reporting that they did not require credit lifted from around 43 per cent in August to a record-equalling 75 per cent in September.

Consumer sentiment:

The ANZ/Roy Morgan consumer confidence rating rose by 1.1 per cent to 113.8 in the week to October 12 after falling by 0.9 per cent in the previous week. The confidence rating is now down just 2.1 per cent on the 7-month high recorded for the week to July 27.

Three of the five components of the index rose in the latest week:

  • The estimate of family finances compared with a year ago was up from +5 to +9;
  • The estimate of family finances over the next year was up from +21 to +25 – a six month high;
  • Economic conditions over the next 12 months was up from -6 to -4;
  • Economic conditions over the next 5 years was down from +8 to +4;
  • The measure on whether it was a good time to buy a major household item was steady at +35.

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 ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

What are the implications for interest rates and investors?

The Reserve Bank will continue to watch and wait – no change in rates is expected before 2015.

There were only modest changes in the latest business and consumer surveys – so no key implications at present. Still, businesses would like some of the global uncertainties to be resolved so consumers lift their spending and businesses can respond with higher orders, sales and employment.

The latest data on business borrowing expectations is negative for lenders, including banks.

 

Published: Wednesday, October 15, 2014


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