Business conditions back-pedalled sharply in February, reversing around half their post-election gains, NAB chief economist Alan Oster said.
“Confidence softened but still remains marginally above trend. Sales and employment fell markedly during the month, with the latter pointing to very weak labour market conditions and a jobless recovery,” Mr Oster said.
“Manufacturing conditions deteriorated sharply, as did ‘bellwether’ wholesaling conditions,” he said, adding that the near-term outlook is weaker with forward indicators softening.
Released Tuesday, the NAB Business Confidence Survey results were a surprise to JP Morgan, which predicted an increase on Monday.
“We forecast this week’s NAB Business Confidence Survey to increase marginally, with the index set to climb from +8 to +9,” JP Morgan stated in its March 10 Australia and New Zealand Weekly Prospects report.
“It will be interesting to see whether last month’s outsized gains in both the employment and forward orders sub-index can be consolidated in this week’s release, with these measures providing most of the positive impulse to aggregate confidence of late,” JP Morgan said.
The NAB Business Confidence Survey found economic growth forecasts remain unchanged.
“Final RBA cut will occur in late 2014, with unemployment still expected to rise to 6.5 per cent by late 2014 and stay higher for longer,” NAB’s Mr Oster said.
In its March 11 Australian Economic Update – which followed the release of NAB’s survey – JP Morgan noted that despite the decline, sentiment remains slightly above the recent average, suggesting that the optimism exhibited in the corporate sector late last year has continued into 2014.
“The conditions index also moved lower in today’s (March 11) release, completely unwinding the gains of the previous few months which had looked frothy,” the note said.
“We have been 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.”
JP Morgan was closer to the money predicting the outcome of the Westpac MI Consumer Sentiment Index for March.
The index has now fallen 10.9 per cent from its November peak of 110.3 and is at its lowest level since May last year.
“Consumer confidence has fallen almost 10 per cent over the past three months, as consumers lower their sights on what the domestic economy can achieve over the next 12 months,” according to the JP Morgan report.
“We expect this week’s release to record a modest 1 per cent move down in confidence, with the negative headlines surrounding job losses in travel and manufacturing sectors partly offset by the more positive economic data flow of the last few weeks,” it said
Westpac senior economist Matthew Hassan said the initial declines in December-January looked to be mainly the unwinding of the election-related sentiment boost.
“More recent falls though have had a very clear theme centring on a sharp loss of confidence in the economic outlook and escalating job-loss fears,” Mr Hassan said.
“The run of ‘bad news’ around the motor vehicle industry, other manufacturers and Qantas has clearly rattled consumers.”
