Boost in business confidence yet to produce any growth
The upturn had yet to translate into a similarly significant lift in business activity, while employment conditions stayed soft and pointed to continued weakness in the labour market, the National Australia Bank's monthly survey released on Tuesday found.
The business confidence index rose to 12 points in September, from 4 in August and minus 5 in July. Business conditions were minus 4 last month, a slight improvement from minus 7 in July and August.
"The pick-up in the confidence numbers are very welcome, but the actual business conditions still point to the pressure on labour market outcomes, because business profitability doesn't appear to be improving at all," Commonwealth Bank senior economist Michael Workman said.
The figures came as a monthly ANZ survey, also released on Tuesday, showed job advertisements rose for the first time in seven months, although they were still 15 per cent lower than a year ago.
After tentative signs of improving economic indicators, including a strengthening housing market, the Reserve Bank shifted to a wait-and-see mode at its October board meeting last week.
The RBA's move led some economists to rethink their expectations of further interest rate cuts, with NAB, ANZ and Westpac delaying their forecasts for the next cut to February.
Even so, economists said they expected the unemployment rate to remain at a four-year high of 5.8 per cent when the September figures are released on Thursday.
They added that the economy needed a sustained rise in business confidence and consumer sentiment, as well as a further fall in the Australian dollar to support export-oriented businesses, to lift above its current below-trend pace of growth.
Analysts are also looking for another month of strengthening consumer sentiment figures, which are set to be released on Wednesday, following a 3.5 per cent rise in August.
The finance, business, property and construction sectors reported big gains in business conditions, possibly driven by the strengthening housing market amid a low-interest-rate environment, NAB chief economist Alan Oster said.
But "activity remained worryingly weak in mining and manufacturing, while conditions in transport and utilities have recently turned down to very poor levels".
Frequently Asked Questions about this Article…
The NAB monthly survey found business confidence rose to 12 points in September, up from 4 in August and minus 5 in July — marking a three-and-a-half-year high in sentiment.
Not yet — the survey showed business conditions remained poor at minus 4 (a slight improvement from minus 7 in July and August) and employment conditions stayed soft, pointing to continued weakness in the labour market. ANZ’s monthly survey did show job advertisements rose for the first time in seven months, but they were still about 15% lower than a year ago.
Finance, business services, property and construction reported big gains — likely helped by a strengthening housing market and low interest rates. By contrast, mining and manufacturing activity remained worryingly weak, and conditions in transport and utilities have recently turned down to very poor levels.
After tentative signs of improvement, the RBA moved to a ‘wait-and-see’ mode at its October board meeting. That led some economists and major banks (NAB, ANZ and Westpac) to delay their forecasts for the next interest rate cut, pushing expectations out toward February.
Economists cited in the article expected the unemployment rate to remain at a four-year high of 5.8% when the September labour force figures were released.
Analysts said the economy needs a sustained rise in both business confidence and consumer sentiment, plus a further fall in the Australian dollar to help export-oriented businesses, in order to lift growth above its current below-trend pace.
Michael Workman noted the pick-up in confidence is welcome, but actual business conditions suggest pressure on labour market outcomes because business profitability doesn’t appear to be improving.
Investors should watch the consumer sentiment figures (set to be released following a 3.5% rise in August), the September unemployment data, and ongoing trends in job advertisements and the housing market — all highlighted in the surveys as key signals for activity and labour market strength.
Call 1300 880 160
Start a chat
Schedule a call
