Forget the slight improvement in business confidence and conditions in the latest National Australia Bank survey and focus instead on the bank’s concerns about the strengthening recession and this morning’s profit warning and job losses from Qantas, and possibly OneSteel, our second biggest steelmaker.

They are telling us conditions are worsening as employment comes under more pressure. The scary times of the credit crunch have eased, but the real fear now for business is the gathering downward move of the economy as it slumps into recession.

The bad news from Qantas won’t be the last from big employers in coming months, and the NAB survey is signalling that with the worst employment outlook in its survey since September 1991.

The Qantas announcement was stunning, more than 1700 jobs to go, including another 500 from management, on top of the 1000 already being chopped. Planes will be grounded and sold, profits are forecast to more than halve from $500 million to as low as $100 million for the year to June. That means the airline will incur a second half operating loss of several hundred million dollars.

With cuts revealed late last year, and other cuts from Jetstar, (it has effectively pulled out of Tasmania) the airline has sliced more than 3500 jobs all up. It has hundreds of positions unfilled, service levels falling and dozens of services are being cancelled, consolidated to save costs.

OneSteel surprised by asking for its shares to be suspended “pending a further announcement from the company in relation to the company’s financial outlook.” That it couldn’t do what Qantas did an produce a profit update and a series of actions to combat the downturn (it has cut steel output three times this year so far as demand plunges) could mean the company has been surprised by the decline in its financial state and needs to raise cash.

So despite the National Australia Bank finding an “encouraging improvement, for the second month in a row” in business confidence, in its latest survey, the news from the likes of Qantas and OneSteel (potentially), plus other downgrades and job cuts from more companies (Flight Centre revealed hundreds of job cuts in Australia last week) is terrible.

Job losses are going to mount: after last week’s surge in jobless to 5.7% (and 200,000 in the first three months of the year), the small improvement in confidence and conditions is a blip.

In fact, the jobs situation is worse than it seems, as there would appear to have been a much greater rise in March than in previous years, where March usually saw a fall in unemployment levels as schools and universities re-opened.

The NAB said this morning that the March survey of business conditions and confidence had shown a small, but noticeable improvement:

The sectors which had led recent declines have in March led the improvement — notably mining, manufacturing and finance & business services. Retail confidence also continues to benefit from prospective Government cash handouts.

At best the pace of decline in business conditions in March may be stabilising – but at levels that imply further negative growth and are still the worst seen since 1992. Indeed as noted above, every sector in trend terms is still reporting significant further deterioration in activity levels.”

Both trading and profitability improved by 5 points to overall readings of -10 and -12 index points. Against that, employment fell another 2 to -29 points — taking this measure to the lowest level since September 1991.

That would confirm the moves by companies, such as Qantas, to axe staff.

The NAB said:

It needs to be stressed that we see no fast recovery in Australian activity. That is, the path of growth is more U than V shaped — with recovery not really getting underway till 2010. This shows up most in the financial year forecasts and especially that for 2009/2010.

As well as the low starting point — including the Survey results for Q1 — we expect exports to fall by around 10% in light of the weak world outlook…”As well as the volume effects, there are also value effects via falling terms of trade. Our forecasts have commodity prices falling by around 28% in 2009 and another 7% in 2010. This means the terms of trade in 2009 are likely to fall by a further 25% during 2009 and then marginally (-2%) in 2010.

We also are very concerned about prospects for both private consumption spending and business investment in the current climate of: falling wealth (equity markets and house prices), low levels of forward orders, lower business sentiment and capital spending plans, and a deteriorating labour market.

We see household spending falling by around ½% during 2009 (despite government handouts) and falls in business investment of around 16%.

And interest rates? Well, the NAB says it sees “the RBA in data watching mode having delivered the bulk of the emergency cuts. Cuts going forward will be data dependent and likely to be delivered in 25 point moves (0.25%). Overall we still see the forecasts requiring a cash rate down to around 2% by late 2009.”

Peter Fray

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