Recent improvements in business conditions seem to have hit a snag as a lack of employment growth weighs on consumer confidence.
February’s National Australia Bank (NAB) business survey shows its business conditions index fell five points to zero in the month.
Its business confidence index fell two points to plus seven.
A reading above zero indicates optimists outnumber pessimists among those businesses surveyed.
NAB group chief economist Alan Oster said the sharp fall in business conditions reflects the jobless nature of Australia’s economic recovery.
“Sales and employment (indexes) fell markedly during the month, with the latter pointing to very weak labour market conditions,” he said.
“Both trading and profitability remain positive, while employment conditions are very weak, pointing to ongoing deterioration of the labour market.”
In January, the unemployment rate rose to a 10-and-a-half-year high of six per cent. Mr Oster said he expects it to rise to 6.5 per cent in late 2014.
JP Morgan economist Tom Kennedy said he was sceptical of the gains in business conditions over the past few months.
“Particularly so given that most of the strength has stemmed from respondents in the embattled manufacturing sector,” he said.
“There is no doubt that the decline in the currency has assisted local manufacturing, but the challenges facing this industry have more to do with productivity and competitiveness issues that are broader than just the currency.
“Accordingly, there was a notable turnaround in responses from manufacturing firms in today’s survey, with this group leading the conditions index lower.”
However UBS economist Scott Haslem is confident that business condition will improve in 2014.
“Overall, business conditions appear to be patchy with a fall to zero in February, but the trend has still clearly improved,” he said.
“Looking ahead, the lagged stimulus from persistent record low interest rates and a lower currency, which we expect to depreciate further to 85 US cents, should support conditions to recommence the uptrend.
“A positive signal is the resilience of business confidence at an above average level.”
“Near-term indicators suggest little improvement over coming months, with forward orders softening, while firms have resumed de-stocking.”
Mr Oster said he expects the Reserve Bank of Australia to make one more interest rate cut this cycle, most likely in November.
NAB’s survey was conducted between February 24 and February 28, covering 600 companies in the non-farm business sector.
