CANBERRA: Business confidence has slumped after two months of upbeat sentiment, according to the latest monthly National Australia Bank survey, which suggests concerns about China’s slowdown may be weighing on executives’ minds.
NAB said confidence dropped four index points, to four, between June and July, while respondents found business conditions had also deteriorated, from 10 to six points.
Both readings are also lower than May’s results, which were buoyed by a better-than-expected Federal budget. Confidence is now below the long-term average, although it remains in positive territory.
NAB’s chief economist Alan Oster attributed the slump in July to sharp drops in confidence or conditions, or both, in mining, transport, and engineering. “The exuberant readings on business confidence seen in recent months were pared back in July,” he said.
“While confidence eased in most industries, much of the change stemmed from mining and construction firms, suggesting an escalation in Chinese growth concerns could be putting firms on alert.”
Conditions for employment, forward orders and exports were all deemed weaker in July compared with June, although there was an improvement in stocks. Labour costs rose just 0.2 per cent on a rolling quarterly basis in the month, in keeping with broadly subdued wage inflation, while purchase costs were up 0.8 per cent, in line with the past three months. Retail prices climbed 0.7 per cent, again in line with the official consumer price index.
“A drop in forward orders and softer trading conditions coincides with an easing in capacity utilisation, to 80.8 per cent from 81.3 per cent,” said Mr Oster.
“Despite the fall in the month, the trend continues to show a tightening of spare capacity, which bodes well for both non-mining business investment and the labour market.”
Despite a jump in the official unemployment rate, from 6 per cent in June to 6.3 per cent in July, some of the survey’s findings point to an improving jobs trend, he said. This made respondents’ downbeat mood on the labour market a concern.
“The trend in business conditions is still rising, and points to a much stronger recovery in the non-mining economy than what headline domestic demand numbers from the National Accounts would suggest,” said Mr Oster.
“Given the relatively higher labour intensity of the non-mining sector, these trends could bode well for labour demand and is consistent with the stronger-than-expected growth in official employment numbers reported by the ABS.
“In this context, it is a little perplexing to see that the employment component of business conditions continue to look soft, turning negative again in July,” he said.
