Quarterly Business Survey

Key December quarter survey results:

• Business conditions in Q4 improved again (up 4 points) with broad-based gains in trading, profitability and employment, the strongest result since March 2008. Employment improved strongly, recording the first positive result since September 2008. The results support the likelihood of a solid outcome for GDP in the December quarter.
• There was a general improvement across most industries and States. Despite an improvement in the quarter, manufacturing conditions remained poor and agribusiness deteriorated further into negative territory. Finance, property services, residential construction and construction services performed best. Rising equity markets helped the finance sector while the first homebuyers' boost (phased out in December) has been important for residential construction. South Australia and Western Australia were the strongest states, while conditions in Queensland continue to be affected by weakness in tourism.
• Business confidence also rose to levels not seen since December 1994 and has clearly consolidated. Government stimulus programs, rises in equity and property markets and an improvement in actual business outcomes all appear to have helped confidence.
• Forward orders increased again to levels last seen in December 2007. In anticipation of stronger demand, businesses have begun to rebuild stocks.
• New data in this Survey point to an improvement in capital expenditure intentions over the next 12 months, but still only consistent with a moderate recovery in business investment during 2010. Average hours worked rose strongly in most industries. Demand constraints have continued to ease and, for the third quarter in a row, fewer firms reported that sales and orders were constraining output. A very modest but rising proportion of businesses report that labour and materials have begun to constrain output.
• Capacity utilisation continues to rise, reaching 81.3% (up 0.8 points) and there are some signs that moderate wage pressures are returning. However, the strong AUD is helping to keep inflation pressures in check, with retail price inflation continuing to edge down.
• Global forecasts now 3½% in 2010 rising to near 4% in 2011, underpinned by China.
• Australian GDP between +¾ to 1% in Q4 and 1% for 2009. Activity may have since slowed a touch, but we still expect 3% growth in 2010 rising to 3¾% in 2011. These equate to 2% in 2009/10 and 3¼% in 2010/11. This implies unemployment falling to around 4¾% by end 2010 and 4¼% by end 2011.
• Exchange rate expected to strengthen, reaching parity by mid- 2010 where it is expected to remain until end-September before declining to 97c by end-2010. Core inflation (as measured by the RBA's preferred measures) to be 2.3% by end 2010, rising to around 2.6% in late 2011.
• RBA to continue increasing rates in 25 point moves (indicative schedule is May, June, August and November) to reach 4¾% by late 2010, & 5½% in 2011. However, every meeting in 2010 is probably live and a decision will very much be data dependent.

Download NAB Quarterly Business Survey - Dec 09