Confidence holds but surveys point to weakness

A WEAKENING mining sector and a softer labour market are pointing to fading domestic growth, analysts say, despite a slight lift in business confidence.

Business conditions for January improved to minus 2 from minus 5 in December, as profitability and trading conditions registered gains, while confidence remained steady after a sharp rise last month on the back of a recovering global economy, National Australia Bank's monthly survey of more than 400 companies found.

The gains were offset by the low level of forward orders, a softening of labour costs, near-record lows of business credit demand and weak capacity utilisation, which fell to its lowest level since 2001.

The survey came as the Reserve Bank reported a slight increase in credit card balances for December. Australians' average credit card balance edged up slightly from $3262 in November to $3282 in December.

The mining sector was the worst-performing industry in the survey, recording a shift from 15 points in December to minus 13 last month, in part due to the possible impact of flooding in the country's north-east.

"I think the economy's hit a soft patch and it is still there," said Alan Oster, chief economist at NAB, adding that the weakening economy would keep the pressure on the Reserve Bank to continue its interest rates easing cycle. "We're seeing for the first time some signs that the stronger parts of the economy are starting to weaken a little."

A New South Wales Business Chamber survey saw key indicators for business conditions, sales revenue, profits, exports and employment all remaining negative.

Low business credit demand was also reflected in a separate survey by credit data research group Veda, with demand slowing across mining and non-mining states.

At the same time, the mining and wholesale sectors led the rise in business confidence, possibly in part due to the rising price of some commodities. A Roy Morgan survey of about 2000 businesses also found confidence lifted in January.

JPMorgan economist Tom Kennedy said the mixed results reflected the international focus of business confidence, while conditions were affected by domestic concerns. "You are really getting the mixed message of an improving global economic backdrop, while in the domestic environment, it's a bit challenging, and that's been seen across every single data point over the past month," he said.