Confidence lifts, despite growth woes

A WEAKENING mining sector and a softer labour market point 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 in line with a recovering global economy, the National Australia Bank's monthly survey of more than 400 firms 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 business conditions survey, shifting from 15 points in December to minus 13 last month, in part due to the possible impact of flooding the north-east.

"I think the economy's hit a soft patch and it is still there," said Alan Oster, the chief economist at NAB, adding 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 bit."

A NSW Business Chamber survey found indicators of business conditions - sales revenue, profits, exports and employment - remained negative.

Low business credit demand was also reflected in a separate survey by credit data researcher Veda.

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

A JP Morgan 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.