Interest rate and tax cuts fail to fire up business as conditions and confidence slip again
The anticipated bounce in business sentiment following the federal election, successive monthly interest rate cuts and personal tax relief has yet to materialise.
- Business conditions and confidence have slipped even further below their long-term trend despite the removal of political uncertainty
- Forward-looking measures such as new orders point to further deterioration in coming months
- Despite a pick-up in August, retail remains the weakest sector, while mining is the strongest
NAB’s highly regarded monthly survey of business conditions and confidence showed if anything, things deteriorated in August.
Both measures fell over the month and continue to sit well below their long-term averages, with conditions now sitting at a five-year low.
The result is very much in line with second quarter GDP data, which showed the economy has slowed to its slowest growth since the GFC, and indicates momentum in the business sector continues to weaken.
And forward-looking indicators in the survey, such as forward orders and capacity utilisation, point to things getting worse before they get better.
“Business confidence and our other forward looking indicators suggest there is unlikely to be an imminent turnaround in business conditions,” NAB chief economist Alan Oster said.
“While conditions are still positive, they have now been below average for some time and point to a significant loss of momentum in private demand.
“This has played out in official data, with the national accounts for second suggesting the bulk of growth in the quarter was driven by the public sector and exports.
Little impact from rate or tax cuts
Breaking down the components of business conditions, both sales and profitability weakened over the month, while employment intentions edged back up to its long-term average.
The survey noted that, based on historical relationships, employment should grow around 16,000 per month over the next six months — well below the levels implied by the survey six months ago.
Inflation and wage growth also remain muted, with growth in final product prices weakening further in the month and labour costs rising only slightly from the low levels seen in early 2019.
Mining remained the sector in the most robust health, with retail — despite a pick-up over August — the weakest. Conditions and confidence in construction sector also remain poor.
“It looks like the tax cuts have had little impact on household consumption or have not been large enough to offset increasing weakness in the [retail] sector,” Mr Oster said.
“The two rate cuts also may have had little impact, though this is expected with the longer and more variable lags of monetary policy.”
Conditions fell in all states over the month, except Tasmania and New South Wales, while conditions remain most favourable in Western Australia, which is strongly supported by mining.