Confidence dips but no biggie

Posted October 19, 2009

After surging in recent months, business confidence, according to the latest NAB Business Confidence survey, has fallen slightly. But what is business confidence and how does it affect you?

Business confidence surveys look at how the people who run businesses feel about their future prospects. Because companies are often more in touch with consumer demand than the boffins at the Australian Bureau of Statistics, their feedback can shed some very useful light on overall levels of economic activity and the general health of the economy. This is particularly so when you combine them with other surveys on things like consumer confidence.

Now to the data…

The latest NAB Business Confidence survey reveals confidence was slightly down in September due to weaker business profits and sales. There are a number of reasons for this and most involve the tapering off of the impact of last year’s cash splash. What this means for the average person is that economic activity may be slowing, which means leaner employment prospects.

The survey also found that upward pressure on wages and prices (which is another way of describing inflation) remains low. Specifically price rises of things in retail shops have slowed to the lowest rate since 1997. In other words that little black dress you spied last week will remain at the same price for a while yet. Importantly, less inflationary pressures mean less upward pressure on interest rates, which of course means lower interest payments to the mortgage beast.

The survey also found the actual intention of business to employ people is growing, particularly if you live in Victoria and NSW. This is good news and supports the recent surprise employment and job ad figures that indicated unemployment may have peaked and won’t hit Treasury’s previous forecasts of 8.5 per cent.

Away from surveys, however, I still think the things set to shape our immediate economic future remain the rising Aussie dollar, the China rebound and the stimulus. The dollar has already started cutting our export income in the form of diminished company sales and profits and this affects all of us in one way or another through lower profits being shared out in the economy. The rising Aussie dollar is also crashing the China party, which has seen us literally taking delivery of tankers full of Renminbi in exchange for coal. Meanwhile the debate around winding back stimulus continues. There is increasing divergence between the views of the RBA which wants to wind back and Wayne Swan who is not so sure. It’s complex to be sure and to paraphrase Paul Keating it’s all about managing the tillers. Spend too much and risk an inflation blow-out, but spend too little and risk killing off the recovery. Making this call requires several tonnes of fully committed grey matter so I am happy to just watch it from the side lines.

In other the saying goes there’s only one thing worse than banks making truck loads of cash and that’s banks loosing truck loads of cash. With that in mind the news out of the US is good. For the quarter just gone, Goldman Sachs made a startling profit of $3.2 billion (four times what it earned last year); struggling Citigroup made a surprising $101m (it lost $2.8 billion last year) and America’s second-biggest bank JPMorgan Chase made $3.59 billion. Oh well all’s well that ends well.