INSIGHT

The Nobel laureate George Akerlof once said he'd always wanted to ground macro-economics in the "full range of human emotions and actions: fairness, confidence, greed, identity, procrastination".

But it's the second noun on that list — confidence — that economists find easiest to measure.

And that's a good thing for all of us, because it's one of the most important — an early reading of a fall in household or business confidence can help to explain why unemployment may soon start to rise, or why asset markets may become more volatile.

That's why the monthly Roy Morgan survey of business confidence is watched closely.

And January 15's survey showed business confidence deteriorated in December.

Roy Morgan director Norman Morris says confidence fell because more businesses felt economic conditions in Australia would not improve "over the next 12 months or five years".

And, certainly, the mining sector was not immune.

The decline in confidence in the mining sector was of concern, he says, because while it still had above-average confidence, other major industries — such as construction, agriculture and manufacturing — all had below-average confidence.

And that hits on the main economic question in Australia at the moment: as economic activity in the mining sector slows, will the non-mining parts of the economy be able to "pick up the slack"?

The lack of confidence doesn't bode well.

When the survey was conducted, local businesses were absorbing negative news such as the approaching "fiscal cliff" in the US, and the dollar's refusal to drop below parity with the US dollar.

But there was also positive news, such as the rebound in iron-ore prices and another cut in interest rates.

Morris says this "complex" environment meant there will likely be "continued volatility in business confidence for some time until a clearer and more stable pattern emerges". So it's something to keep in mind as we head into the sharemarket reporting season.

However, it's also worth noting that, behind the scenes, fund managers are still buying stocks in "troubled" companies in the non-mining sectors.

The influential listed investment fund, Mirrabooka, for example, recently bought holdings in BlueScope Steel and JB Hi-Fi.

Mirrabooka's general manager, Geoff Driver, explains the reasoning as JB Hi-FI having "been under a fair bit of pressure for different reasons over the last few months, but underlying we think [it] is still a good business; same as Bluescope".

Driver says the $270 million fund has $24 million to reinvest.

"The market's run pretty strongly, clearly in response to lower interest rates and people looking to put their liquidity elsewhere ... but we also expect the market is in for a period of consolidation," he says.

"We take the view that we're investing for the long term, so we're not rushed."

The Commonwealth Bank's share-trading arm, CommSec, last week said retail investors were net buyers through December of consumer discretionary companies, consumer staples, energy, IT and telecommunications; and net sellers of financials, health care, materials and utilities.

This is interesting because the best performers of 2012 were high-yield defensive stocks, such as health care, banks and Telstra.

"Nonetheless, despite a shift by retail investors towards cyclical sectors, overall trading still remains lacklustre ... Gross trading levels remained flat in 2012 and retail investors were net sellers in nine months of the year," CommSec says.

Given news last week of job cuts at BlueScope and Boral, it will be interesting to see if that trend continues and how the job cuts affect business confidence.

Hold on to your hats.