Australian business confidence slumps in June, NAB says

Business confidence has slumped after a brief boost following May’s election, with economists saying any quick turnaround is unlikely.

Warehouse staff at Ascent Shoes in Virginia, Brisbane. Picture: AAP

Business confidence slumped in June, backtracking from a post-election bounce in May, with indications that any turnaround in the next few months is unlikely.

The NAB Monthly Business Survey revealed the business confidence index had fallen 5 points to +2 for June, after rising 7 points from flat in the month prior.

“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,” said NAB chief economist Alan Oster.

Meanwhile, business conditions rose 2 points in June, partly driven by a lift in the employment subindex, but conditions remained below average, at +3 index points.

“While business conditions increased slightly in the month, they remain well below average after trending lower for over a year now,” Mr Oster said.

“The decrease in conditions has been relatively broadbased across states and industries — suggesting that there has been sector wide loss of momentum over the past year.”

NAB said that the recent run suggests that the economy is unlikely to record a significant pick-up in growth for the second quarter.

Forward orders remained below average in June, meaning that a turnaround in business activity in the coming months is unlikely.

“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,” Mr Oster said.

“This suggests the pipeline of demand is weak and is consistent with below average confidence.”

Survey measures of inflationary pressure were also weak in June, with output price growth remaining low and retail prices showing a decline in the month.

Still, capacity utilisation increased sharply in June, with a number of industries experiencing an improvement.

“Two positives in the month were employment and capacity utilisation,” Mr Oster said.

“The employment index rebounded to be well above average and is important in the context of the outlook for the labour market.

“For now, labour market developments appear to be the key driver of monetary policy, with weak wage growth seeing both slower household income growth and weak inflationary pressure.

“Both a tighter labour market and higher capacity utilisation would see inflation pressures build — so we will continue to watch to see if the improvement in these measures is sustained.”