Business confidence index falls in Dec

Business confidence took a hit in December as Australian firms absorbed a series of
official interest rate rises as well as tighter trading conditions, a survey shows.
But Australia's economy is on track to register economic growth of up to one per
cent in the fourth quarter of 2009, which would take the annual rate to one per
cent, according to the latest National Australia Bank (NBA) monthly business survey.
NAB's business confidence index declined by 11 index points to plus-eight points in
December.
The confidence of firms in the mining and construction improved but there were broad
based falls in the retail, wholesale, finance, transport and recreation sectors.
The business conditions index was unchanged at plus-10 index points in December.
Trading conditions grew by two index points to plus 17, while profitability showed a
more marginal improvement of one index point to plus 12.
NAB chief economist Alan Oster said businesses were facing up to the reality of
tight trading conditions and higher interest rates after three hikes by the Reserve
Bank of Australia (RBA) since October last year.
"The fall [in confidence] may represent a return to greater realism given current
activity and trading conditions," he said in a statement on Tuesday.
"Overall the falls in confidence were broadly based but more marked in retail,
transport and personal and recreational services.
"That suggests that RBA actions and the high Australian dollar are starting to
moderate expectations."
The NAB survey also showed the economy was maintaining significant momentum and
could have grown by between 0.75 per cent to one per cent in the fourth quarter of
2009.
"Our current expectations of growth of between of 0.75 to one per cent in quarter
four would see Australian gross domestic product average one per cent in 2009," NAB
said.
"The survey also points to continuing strength in forward orders and confidence levels.
"It now appears that business is re-employing, raising capacity utilisation and very
tentatively raising longer run investment intentions."
CommSec economist Savanth Sebastian said while businesses were cheering the nation's
improved economic conditions, their attitude had been tempered in recent weeks.
"CommSec would expect business conditions to track sideways over the next few months
before strengthening in the second half of the year," he said in a research note.
The survey said capacity utilisation moved higher in December, edging up 0.2
percentage points to an overall reading of 81.6. The survey noted capacity
utilisation remained above the long term average and continued to trend up.
Meanwhile, a fall in forward orders in the construction sector saw the forward
orders slip two points to plus seven.
The survey also showed employment improved in the month, to seven index points from
two points in November.
Export sales fell to minus 13 points from minus seven, marking the third straight
fall in the sector since October.
Hours after the NAB survey was released, the RBA opted to leave the interest rate
steady at 3.75 per cent in a move that surprised most market observers.