Following yesterday’s ABS figures, which showed that housing was
recovering in February before the March rates rise, the major banks
disagreed with each other over whether a further interest rate rise was
necessary and whether it would occur next month. The NAB business
survey and the consumer sentiment data, released today and tomorrow,
respectively, will provide a greater idea of what the RBA will do,
according to Tony Meer of Deutsche Bank. Perhaps they should look at
Roy Morgan’s consumer confidence rating, released last Friday.

The NAB Business Survey has arrived in Henry’s inbox. Its main findings (as summarised by the NAB) are:

  • The slowing of the economy has continued from late 2004 and a real slowdown is underway.
  • Business conditions have slowed. In particular, forward orders
    have moved down more sharply, stocks appear to be rising involuntarily
    and business confidence has to erode in the
    face of the weakening in activity.
  • Exports are still weak, with the high AUD contributing to this.
    “In our view, the argument that infrastructure shortages are the main
    restraint is much overplayed.”
  • Cyclical sectors are still leading growth slowdown. ie retail,
    wholesale and transport. Mining is booming while service sectors report
    “robust” business conditions.
  • Wage and price pressures are broadly unchanged.
  • Growth outlook is unchanged – 2% in 2005 and 2.5% in 2005/06.
  • The RBA should not increase the cash rate. However, NAB expects
    the RBA to increase cash rates soon given the prospects of increasing
    inflation though the NAB predicts that cash rates are likely to move
    down in early 2006.

Henry Thornton notes that serious economy watchers should focus in particular on:

    • Signs of wage pressure, despite the relatively bland “official” statement reported above; and
    • Comment that employment seems weaker than very strong official
      survey data, supporting the “seriously slower economy hypothesis”.

    Read more here.

    Peter Fray

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