Retailers support business confidence

Rising sales and profits lifted business conditions in June, while the confidence of firms was generally unchanged, a survey says.


The National Australia Bank’s (NAB) monthly survey of business conditions rose two points to eight index points in June, the report released on Tuesday said.

A reading above zero indicates more firms are optimistic about business conditions than pessimistic.

“Business conditions moved higher on the back of better performances in trading (especially mining),” the report said.

“Profitability also improved.”

The trading sub-index rose four points to plus 12 points, while the profitability sub-index also rose four points to plus five points.

“The mining sector recorded extremely large increases in trading conditions, profitability and employment, and mining now has by far the strongest index levels in three components,” the report said.

Trading conditions firmed in the construction and retail sectors, but fell in manufacturing and recreation and personal services.

Despite miners reporting strong trading conditions, the sector had the sharpest drop in confidence, the report said.

Miners dragged the overall confidence index lower as the survey was conducted during the week ending June 30, two days before the federal government announced changes to the resources rent tax.

The business confidence index fell one point to plus four points in June, below its long-run average of plus seven points, the survey said. Confidence dipped in all major states.

The large mining states of Western Australia and Queensland were the most confident states, while South Australia had the weakest confidence of mainland states.

NAB said its forecast for economic growth remained unchanged, with the bank predicting gross domestic product (GDP) to expand 2.75 per cent in 2010 and 3.5 per cent a year later.

The Reserve Bank of Australia (RBA) would keep monetary policy unchanged until the latter part of this year with 25 basis points rises in both November and December for a year-end overnight cash rate of 5.0 per cent, NAB predicted.

Citigroup senior economist Joshua Williamson said the business confidence data should support the central bank’s view of the economy.

“Today’s data does not add to the case for higher interest rates,” Mr Williamson said.

“It indicates an economy on a trend growth path, but one that reflects the cyclical drivers occurring more broadly.”

He said Citigroup forecast the RBA would leave the cash rate unchanged following its board meeting on August 3.