Business conditions deteriorate - The Advertiser 9-7-08Â
BUSINESS conditions deteriorated sharply and unexpectedly in June as costs continue to rise and confidence falls, a survey says.
National Australia Bank's monthly business survey found business conditions fell seven index points to zero points in June, 20 points lower than its recent peak in October 2007.
"This moderation during the first half of 2007 represents the biggest six-month deterioration since the economic slowdowns in 2000/01 and 1990/91,'' NAB head of Australian economics Jeff Oughton said in the report.
"Conditions across the non-farm business sector as a whole deteriorated unexpectedly and significantly in June.
"This slowdown in conditions appears to have further to run.''
Business confidence declined five index points to minus-nine points, its lowest mark since the September 11 terrorist attacks in 2001.
The measure of employment fell seven index points to minus-two points, the first negative result in more that six years.
"The sustained moderation in sales and profits is now negatively impacting employment significantly - both current job gains and hiring intentions,'' Mr Oughton said.
Wages rose by 1.2 per cent in June on a three-month, seasonally adjusted basis, the report said.
Annual wages growth was 5.3 per cent.
The paypackets of those in the mining industry were up more than nine per cent during the past year, while salaries of people in wholesaling, manufacturing, construction and transport were rising near or above average.
"Any marked up-tick in wages growth remains a concern for ongoing inflation - especially any wage gains associated with second round effects of rising oil, food and other commodities,'' Mr Oughton said.
Sales were weaker, with firms highlighting lower consumer confidence and higher interest rates as the main cause.
The costs of running a business was also higher, the report said.
Purchase costs rose 5.2 per cent during 2007/08, and the added expenses were being passed through to consumers.
"A sharp increase in purchase costs in recent months is also potentially a concern for inflation,'' Me Oughton said.
Economy wide and retail prices were up about three per cent during 2007/08.
NAB's forecast for the next round of inflation figures is for the Reserve Bank of Australia's core inflation measure to print at 0.9 per cent for the June quarter.
The consumer price index (CPI) for the June quarter is due on July 23.
"Headline CPI inflation - reflecting oil/fuel and to a lesser rent and financial prices will clearly get worse in the near term,'' Mr Oughton said.
"Any unlikely signs of second round effects flowing into a generalized pickup in wages could well see the RBA in action again.''
But NAB expected the central bank to "look through the short run pick up in core inflation in the near term'' and remain on hold "as demand moderates significantly further this year''.
While capacity utilisation remained broadly unchanged at about 82.5 per cent in June, the measure of forward orders continued to be weak at minus-three index points, the third straight negative monthly result.
