Business conditions stabalise in May, but dark clouds remain

Finally, a little bit of good news – but don’t get too excited.

NAB’s monthly survey of business confidence revealed entrepreneurs becoming slightly less pessimistic in May, following large falls in confidence in March and April. The business confidence index ticked up four points to -4, while the business conditions index was unchanged at +7 points (the lowest reading since December 2002).

But NAB’s economists say the outlook from business operators would tend to indicate that things could get tougher in the next few months. Recent weakness in the outlook for sales and profits is having an impact on employment, forward orders and capacity utilisation – all of which fell last month. “Clearly, outcomes are turning out worse than earlier expected,” NAB economist Alan Oster said.

In news that will worry the Reserve Bank, wages growth remained high in May, with the annual growth running at around 5.3%. Purchasing costs also jumped – mainly because of the rising oil price – which means inflation pressures and the threat of another interest rate rise remains very real.

In another slice of good news, a new survey of 7800 business owners across 34 countries by accounting and business advisory firm Grant Thornton has revealed employment conditions remain relatively strong. According to the survey employment has increased in Australia by 6% in the past 12 months, just above the global average of 4%.