Business confidence and conditions rose during January but businesses are still concerned about the worldwide economic outlook, according to the latest NAB monthly business survey.
The finding comes just days after the survey for the December quarter found that while businesses have taken some solace from interest rate reductions, the softening job market and pressure from Europe is still weighing heavily on many firms.
The new survey found overall business confidence was steady, up just one index point, while conditions rose from zero points to two.
However, profitability fell from negative one to negative four, and employment and trading conditions remained flat.
Conditions in the wholesale, transport and utilities and construction industries fell, but these were offset by improvements in mining, manufacturing and recreation and personal services. Conditions fell in South Australia and Tasmania, but improved in Victoria and Queensland.
Conditions were strongest in mining, but weakest in wholesale, manufacturing and construction.
“Overall, this month’s activity readings were broadly unchanged from December but forward indicators improved, so activity may strengthen a little,” economist Alan Oster wrote in the survey.
While conditions have remained soft in January, the outlook for the next few months is positive. Forward orders index improved by one point, after a fall in December, which NAB pins on the rate cut.
Orders also improved in the transport and utilities, and recreation and personal services industries. However, orders were still down in wholesale and manufacturing.
Labour costs are also down, moving from 1% to 0.7%, with the survey suggesting “the softening in costs growth may reflect a general easing in wage pressures”. Price inflation also eased, while purchase cost pressures fell to 0.2% from 0.5% in December.
Overall, Oster said the survey confirms the bank’s current predictions – that the RBA will make another rate cut, most likely in May.
“Forward indicators of activity and employment imply a soft start to 2012… our activity and inflation forecasts are almost identical to those now published by the RBA.”
“While a line ball decision, there may just be room for one further RBA cut in mid 2012 (May), based on tightening financial conditions… thereafter we see the cash rate unchanged until mid-2013 when rates will be under upward pressure from wages and a strengthening labour market.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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