Stimulus package boosts business confidence, but outlook still bleak

The Rudd Government’s $10.4 billion stimulus package helped boost business confidence and conditions in December, but the pick-up is likely to be temporary as the economy slides closer to recession.

NAB’s monthly business survey, released this morning, showed business conditions and business confidence both increased slightly in December, with the retail and wholesale sectors – those most assisted by the stimulus plan – reporting a temporary boost in trading conditions and profits.

But despite the better month, conditions and confidence still remain at levels not seen since the recession of the early 1990s.

“Clearly the critical question is whether the December reading represents a turning point from overly pessimistic recent readings – especially for business confidence which is still around levels last seen at the bottom of the 1990/91 recession – or a temporary bounce that is unlikely to be sustained,” NAB economist Jeff Oughton says.

“Unfortunately there is much in the survey to point to the latter outcome – or at least that is the way business is positioning themselves re employment and business investment.”

Most worrying are the indicators around employment, forward orders and investment intentions, all of which show companies are preparing for conditions to worsen in the coming months.

Indeed, while the measurements for conditions, confidence and profits increased, the employment index remains stuck at recession levels.

“That reading…is strongly indicative of employers continuing to shed labour – especially in mining, manufacturing, construction and the finance sector,” Oughton says.

One positive to come out of the survey is an improvement in the ability of companies to secure financing. About 17% of respondents reported difficulty in December, well down from 27% in November.

However, the number of companies reporting that they have no need to borrow money – presumably because they have canned investment plans – has increased sharply, from 30% to 39%.