Daily Commentary BY THE CURVE TEAM –

Business Conditions Still Sliding

12th of June, 2019

The latest monthly business survey showed business conditions continue to slide. One sector is under particular pressure which doesn’t bode well for the outlook.

After hitting record highs in late 2017 and early 2018 since the survey began back in 1997, business conditions have been in a downtrend ever since. The latest survey saw conditions fall even further and are now well below their long run average and on the verge of heading into negative territory.

The drop in business conditions continue to be driven both deteriorating trading conditions and a fall in profitability. Trading conditions have fallen from 12 to 3 over the past two months while profitability has now fallen into negative territory at -3.

One sector that at the epicentre of the decline in business conditions continues to be the retail sector. While all good distribution industries are under pressure, retail is in real trouble with the accompanying report to the survey results from the NAB saying it “is clearly in recession.”

There is also still little in the way of inflationary pressures with businesses under margin pressure if anything. Labour and purchase costs are still running well ahead of final product prices and retail prices. The downtrend in the capacity utilisation rate also doesn’t bode well for wages and overall inflationary pressures.

One positive from the latest survey was that business confidence did lift somewhat. The survey straddled the election period which suggests that businesses were either happy with the result or there was some relief now that election is out of the way and it is back to business as usual with little policy change on the immediate horizon.

Today we get the latest consumer sentiment update and with retail in the doldrums it will be interesting to see if consumer confidence is still holding up ok. This mornings weekly consumer sentiment pulse suggest there is a slight downside risk to the monthly survey.

David Flanagan

Director - Interest Rate Markets