Business confidence falls after election spike

Australian business confidence retreated in June following a post-election spike in the previous month, while overall conditions look set to remain weak, according to a survey of Australian companies.

The National Australia Bank’s (NAB) index of business conditions, a monthly survey of about 550 companies, rose 2.0 points to +3 while its index of confidence fell 5.0 points to +2.

NAB’s analysis, which last month stated the country’s retail sector was “clearly in recession”, says there are few indications that general business conditions will improve soon.

“The retail sector remains the weakest of all industries with levels of business conditions last seen in the GFC,” the report released on Tuesday says.

“This suggests that activity in the sector is going backwards – and in line with other indicators suggesting both price and volumes growth has remained weak, while margins continue to face pressure.”

NAB economist Alan Oster said corporate sentiment had been boosted in the May survey – when business confidence gained 7.0 points – by the federal election result on May 18 and the Reserve Bank of Australia’s interest rate cut on June 4.

“Business confidence appears to have unwound its spike in May, which we think was driven by a short-term election bounce and increased optimism around a renewed interest rate easing cycle by the RBA,” Oster said

“Forward-looking indicators suggest that there is unlikely to be a material improvement in conditions over the next few months, with forward orders remaining very weak. This suggests the pipeline of demand is weak and is consistent with below average confidence.”

But the index indicated jobs rose for the second month in a row, up 3.0 points to +5, which will be welcomed by the RBA as it watches for any momentum that could lower unemployment.

“The employment index rebounded to be well above average and is important in the context of the outlook for the labour market,” Mr Oster said, although he added the positive news was offset by other measures in the survey pointing to low inflation.

“This is particularly evident in retail, where we have now significant evidence of weak household consumption across a range of measures,” he said.

The report says retail prices had “an outright decline in the month” because households were cautious “in the face of high debt levels and pressure on budgets after increased spending on ‘essentials’ in recent years”.

Source: AAP