Business conditions remain soft, as confidence erodes

Despite a slight improvement in business conditions during the June quarter, the NAB Quarterly Business Survey has found conditions remain soft and further weakness is likely in the near term.

Business profitability rose in the April to June quarter, with employment easing and trading conditions remaining broadly unchanged. Forward orders remained weak, whilst stocks were unchanged and consistent with softer domestic demand in the near term.

Conditions improved sharply in Mining, where they were also the strongest, followed by Business and Transport & Utilities. In contrast, conditions deteriorated further in the Retail, Recreation & Personal Services and Manufacturing industries, and remained poor in Retail, Manufacturing and Construction.

Despite conditions in Queensland improving solidly in the quarter, it remained the weakest performing mainland state, whist in contrast, conditions were strongest in Western Australia.

A loss of business confidence was recorded across a majority of sectors in the quarter, with the most significant declines recorded in Finance and Mining. An improvement in sentiment was recorded by Business, as well as Recreation & Personal Services.

NAB found Business is the most optimistic industry and Finance the least confident. Confidence deteriorated across all mainland states, with the sharpest declines recorded in Queensland, NSW and Victoria. Sentiment was weakest in SA and highest in WA.

Businesses capital spending intentions over the next 12 months rose further in the June quarter, to levels last recorded in late 2007.

Consistent with a fall in average hours worked, short and long-term employment expectations softened, although overall expectations remained above current levels implying that the labour market may continue to tighten.

Lack of demand is expected to remain the most constraining factor on profitability over the year ahead, whilst interest rates, wage costs, capital capacity and suitable labour remained fairly unimportant.

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