Business conditions are improving but continued global uncertainty and weak commodity prices in the resources sector have caused business confidence to fall backwards, according to the latest NAB Monthly Business Survey.
The survey shows that although trading conditions and profitability are improving, weak commodity prices have taken a toll on the mining sector, which was the worst affected industry in August.
Global uncertainty, specifically in the United States and Europe, has been blamed as a major factor.
Confidence fell five points to -2, while conditions actually improved from -3 to one. However, NAB said “the levels of activity remain subdued”.
“The improvement was driven by broad-based improvements in trading conditions, profitability and to a lesser extent employment. Conditions improved across most industries – with particularly strong pick-ups in retail and wholesaling.”
“Against that, mining conditions fell heavily – in line with the softening in commodity prices and especially iron ore prices: consistent with this, heavily in WA, though they remained elevated relative to other states in trend terms.”
Demand for credit rose, “possibly aided by RBA cuts”, although lending conditions remained difficult, the survey said.
Employment rose one point to zero, while forward orders fell two points to negative two.
Conditions improved across most industries in August, with big improvements in wholesale, retail and construction. However, conditions in the mining sector fell “heavily”, and softened in both recreation and personal services.
“The weakening in mining conditions has emerged as a key theme over the past four or so months, with conditions falling from the most recent peak of +53 index points in April to +6 points in August,” NAB said.
The decline in mining conditions comes alongside a slowdown in China and global economy volatility. It also notes that variation in conditions across sectors has become “pronounced” since 2009, although the gap has started to tighten.
Profitability picked up in wholesale, transport, construction and retail, while employment conditions rose in mining and transport.
Confidence, on the other hand, deteriorated across all industries in August. The biggest fall was in mining, down 14 points to negative 13, while confidence also fell in recreation and personal services, finance, property and business, and manufacturing.
Confidence was weakest in mining and construction.
However, there is hope – NAB says the survey was conducted prior to the European Central Bank announcing its bond-buying plan.
Against that background, local business conditions imply ongoing trend growth and a relatively benign labour market, which may be providing some support to underlying confidence.
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