10 Mar 2015
NAB Monthly Business Survey: Confidence deteriorates despite RBA cut
FXStreet (Bali) - The NAB Monthly Business Survey for February 2015 saw business confidence deteriorate from 3 to 0, with business conditions unchanged at 2.
Comments from Alan Oster, Chief Economist at NAB
"The RBA’s 25bp cut to interest rates in February did not appear to have the desired effect on firms ‘animal spirits’, with confidence actually deteriorating in the month. The index is now at its lowest level since before the Federal election in 2013 and is well below the long run average. The fall was relatively broad based, suggesting common factors such as political and economic uncertainty, are driving this result. Mining and retail reported the largest decline, while manufacturing and wholesale were the only industries to report a rise in confidence (although both remain soft)."
"Business conditions were unchanged in February, with each of the components (trading, profit, employment) holding broadly steady – the employment index improved only marginally. This level of conditions is pointing to below trend rates of activity. By industry, manufacturing and construction improved the most, more than unwinding a surprise drop in construction last month to be in positive territory again. In contrast, mining dropped sharply in line with weaker commodity markets and less favourable movements in the AUD. Orders were up (albeit still soft), as is capacity utilisation, which is helping support reasonable levels of non-mining capex (although recent ABS data raises questions over the longer-term outlook). In contrast, the ‘bellwether’ wholesale industry weakened even further."
"The economic forecasts are largely unchanged (see p4). As NAB expected, in March the RBA decided to wait and see what impact its February cut would have on confidence and asset prices. The domestic economy, in early 2015, has not gained momentum and indeed business confidence is lower. Inflation will continue to slow. We still see another rate cut in coming months – most likely May but the April meeting is live and data-dependent. We are not forecasting a second cut to below 2% but the chances of that happening are rising (35-40% chance) as unemployment increases. Rate rises are expected to begin by H2 2016 with the cash rate reaching 3% by late 2017."
Comments from Alan Oster, Chief Economist at NAB
"The RBA’s 25bp cut to interest rates in February did not appear to have the desired effect on firms ‘animal spirits’, with confidence actually deteriorating in the month. The index is now at its lowest level since before the Federal election in 2013 and is well below the long run average. The fall was relatively broad based, suggesting common factors such as political and economic uncertainty, are driving this result. Mining and retail reported the largest decline, while manufacturing and wholesale were the only industries to report a rise in confidence (although both remain soft)."
"Business conditions were unchanged in February, with each of the components (trading, profit, employment) holding broadly steady – the employment index improved only marginally. This level of conditions is pointing to below trend rates of activity. By industry, manufacturing and construction improved the most, more than unwinding a surprise drop in construction last month to be in positive territory again. In contrast, mining dropped sharply in line with weaker commodity markets and less favourable movements in the AUD. Orders were up (albeit still soft), as is capacity utilisation, which is helping support reasonable levels of non-mining capex (although recent ABS data raises questions over the longer-term outlook). In contrast, the ‘bellwether’ wholesale industry weakened even further."
"The economic forecasts are largely unchanged (see p4). As NAB expected, in March the RBA decided to wait and see what impact its February cut would have on confidence and asset prices. The domestic economy, in early 2015, has not gained momentum and indeed business confidence is lower. Inflation will continue to slow. We still see another rate cut in coming months – most likely May but the April meeting is live and data-dependent. We are not forecasting a second cut to below 2% but the chances of that happening are rising (35-40% chance) as unemployment increases. Rate rises are expected to begin by H2 2016 with the cash rate reaching 3% by late 2017."