Business confidence and conditions improve

The renewed sense of optimism that helped consumer confidence surge last week has now spread to the business community, with a new survey from NAB showing business confidence and conditions rose during June.

Business confidence jumped 6 points to +4 index points, the first positive reading since December 2007.

Business conditions jumped sharply, with the overall index up from -14 to -2 index points. NAB says that the index is now back to the levels of September 2008, just prior to the collapse of Lehman Brothers.

While the measures of trading and profitability conditions both improved, the biggest jumps were in the measures of employment and forward orders.

The index measuring forward orders experienced the biggest monthly jump in the history of the survey, rising 14 points to an overall index of zero points. The surge in orders was driven by very strong retail orders, particularly from the automotive sector where the Government’s 50% investment allowance has sent sales soaring.

The employment index jumped 18 points to -7 index points – also the biggest monthly improvement in the history of the monthly survey – to levels last seen in October 2008, although this still implies modest job shedding.

NAB chief economist Alan Oster admits he is surprised by the buoyant reading.

“For a number of months we have seen business confidence improve and that has continued – led in June by improving sentiment in manufacturing and finance. Much of that, however, could be put down to the prospect that ‘Armageddon’ had been avoided,” he says.

“The June Survey however suggests that improved confidence has now been reflected in better business outcomes. Indeed, business conditions appear to have rebounded to a level roughly similar to that reported prior to the collapse of Lehman Brothers in September 2008 and the near global meltdown in activity that ensued.”

However, Oster has warned that it is still not clear whether business conditions can hold up into the second half of the year.

“While the survey clearly points to much better than expected outcomes, the real question is whether this improvement can be sustained into the second half of 2009, as the impact of cash handouts and the first home owner’s grants start to fade.

“Overall we are still very much in the camp that, however welcome the current strength might be, it will not be able to be sustained.”