Confidence lifts, despite growth woes
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.
Frequently Asked Questions about this Article…
NAB's monthly survey of more than 400 firms found business conditions improved to -2 in January from -5 in December, with gains in profitability and trading conditions. Business confidence remained steady after a sharp prior rise, according to the report.
Analysts point to a weakening mining sector, a softer labour market, very low forward orders, near‑record lows in business credit demand and weak capacity utilisation (at its lowest level since 2001) as signs that domestic growth may be fading despite a slight lift in confidence.
The mining sector was the worst-performing industry in the survey, sliding from +15 points in December to -13 in January, with the decline partly attributed to the possible impact of flooding in the north‑east.
Low business credit demand, highlighted by NAB and a separate Veda survey, signals that firms are borrowing less to invest or expand — a sign of weaker domestic activity that investors often view as a drag on future corporate earnings and economic growth.
NAB's chief economist Alan Oster said the weakening economy would keep pressure on the RBA to continue its interest‑rates easing cycle. The survey points to conditions that could support more accommodative policy, though it does not predict specific RBA moves.
The RBA reported a slight increase in average credit card balances, from $3,262 in November to $3,282 in December — a small rise in consumer card debt reported alongside the business surveys.
The mining and wholesale sectors led the rise in business confidence, which the article says may be partly due to higher commodity prices. A Roy Morgan survey of about 2,000 businesses also found confidence had lifted strongly in January.
As noted by a JP Morgan economist, the results reflect an improving global backdrop but a challenging domestic environment. Everyday investors may want to follow both international indicators (which can boost commodity and export sectors) and domestic signals like credit demand, capacity utilisation and labour market softness to get a balanced view.
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