Australia | Aug 11 2009
By Greg Peel
The National Australia Bank monthly business survey for August showed business confidence jumping up another 6 points to be positive 10 points – the best result since August 2007. The business conditions measure edged up to consolidate July’s big gains. NAB suggests the latest data show confidence back around historical norms.
The gains in confidence were largely broad-based, NAB notes, although manufacturing, construction and finance stood out. However, falls in retail and wholesale and a flat reading on transport were offsets, and are consistent with the dwindling effects of the government stimulus package.
Although “aggressive” destocking of inventories continues (read clearance sales) the good news is forward orders strengthened noticeably, NAB points out, to be back into positive territory on the scale for the first time since late 2007. Domestic demand appears to have moved into the September quarter with “considerable” momentum implying near trend growth. Capacity utilisation appears to have now stabilised, rising from 79.3% in July to 80.3% in August. But again it is manufacturing and construction and also mining driving forward orders. Retail and wholesale orders were “sharply” lower.
On the back of the survey, the NAB economists have increased their Australian GDP growth estimate for 2009 from an earlier negative 0.5% to zero, with 2010 moving up to 1.2% growth. However, the economists do see some of current GDP strength as being temporary and the second half of 2009 may yet see flat to falling growth. They are forecasting peak unemployment of 7.3% in 2010 with consequent easing of wage and price pressures.
NAB believes the RBA will keep its cash rate on hold at 3% until February, unless further positive results on unemployment and business activity warrant a hike in late 2009. The “availability of credit” measure in the survey was unchanged from July, implying ongoing difficulty. However the proportion of businesses “not wanting credit” fell this month from 43% to 35%, which ties in with the overall return of confidence.
We now await tomorrow’s Westpac-Melbourne Institute survey of consumer confidence to get the other side of the picture. This index also jumped sharply in July.
I have noted in the past, however, to be wary of “double counting”. The announcements of each of the July surveys caused big jumps in the ASX 200 on the day, given the strength of the results. But confidence was simply a reflection of the apparent improvement in economic conditions, represented by an already strong stock market. Such confidence surveys are considered to be leading indicators because confidence implies activity ahead, rather than past. However, if that confidence is derived from what has previously transpired, then there is also a lagging element. Confidence goes up with the stock market and then the stock market goes up with confidence.