NAB chief economist Alan Oster fears a prolonged period of poor business confidence could extend to investment and employment intentions.
The major bank’s monthly business survey for September, released today (8 October), saw business conditions edge up by 1 point while confidence edged lower.
Retail and wholesale (the goods distribution industries) are weakest — a reflection of conditions in the household sector. The survey found that manufacturing and construction are also weak, reflecting the dynamics in the housing sector and possibly some impact from global trade turmoil.
According to Alan Oster, NAB group chief economist, the results of the September survey suggest “more of the same” for the business sector.
“Conditions edged up, and confidence was marginally lower, but both remain below their long-run average — well below the levels seen just over a year ago. This suggests that activity in the business sector has slowed and we fear the risk that this spreads to both investment and employment intentions,” Mr Oster said.
The economist said there are some key themes in the business sector, including a downturn in housing construction that is yet to fully play out, weak consumption, low income growth, high debt levels and global uncertainty.
More positively, Mr Oster noted that public sector spending has been a support to the business sector, with a large pipeline of work underway, Mr Oster said.
“These factors have seen particular weakness in the ‘goods’ related part of the business survey, with particular weakness in retail, wholesale, construction and manufacturing. Services sectors have generally held up better, and mining, while volatile recently, is also still a positive,” he said.
Forward-looking indicators are mixed. Capacity utilisation fell slightly in the month, but remains above average. Forward orders edged higher but are below average.
“In combination with weak confidence, leading indicators generally suggest that conditions will remain around where they are going forward. To date, employment has mirrored the strength in the official labour market data, though the suggested pace of employment growth has slowed somewhat. Surveyed capex has declined further and is now below average — the quarterly survey for Q3 released next week will give us an indicator of firms’ intentions for investment in the period ahead,” Mr Oster said.
“We continue to watch the business sector closely — the housing downturn and the weakness in the retail sector are likely to continue to play out further, adding to private sector weakness in the economy. Rate cuts will help but will lag, and with a weak consumer and higher global uncertainty, we are unlikely to see a material improvement in the short term.”