Australian business confidence boasted its biggest jump since 2001 while job advertisements fell at the slowest pace in 13 months in May, adding to signs the economy was responding to fiscal and monetary stimulus. The readings from two separate surveys offered hope Australia could remain one of the few developed countries to have escaped recession, though much depended on whether improved sentiment turned into actual spending and hiring.
"Confidence, especially in the business community is the key and cannot be underestimated," said Su-Lin Ong, a senior economist at RBC Capital Markets. "It suggests the Reserve Bank will remain in pause mode with an easing bias, while signs of stabilisation abroad suggests that we are close to the end of this easing cycle." The Reserve Bank of Australia (RBA) left its main cash rate unchanged at 3 percent last week after its monthly policy meeting, but signalled there was scope for some more modest easing if the economy failed to recover as expected.
In that regard, the tentative brightening in the business mood was welcome. A monthly survey of over 400 firms from National Australia Bank showed its measure of business confidence jumped 12 points to -2 in May, with notable improvements in construction, manufacturing and wholesale. While negative, it was the highest reading since February last year and, apart from wild swings that followed the September 11, 2001 attacks on US cities, it was the biggest bounce since the series began in 1989.
NAB chief economist Alan Oster attributed much of the improvement to sizable infrastructure and fiscal spending plans included in the Labour government's annual budget in May. "The stimulus from the federal budget has clearly raised hopes of a government investment-led recovery, with construction industry confidence leading the way," said Oster.
UNCERTAIN ON UNEMPLOYMENT Still, there was limited evidence as yet that the improvement in sentiment was actually leading to more business spending. The survey's measure of investment remained weak, while forward orders slipped and inventories remained depressed. Indeed, the survey's overall measure of business conditions fell 4 points in May to -14, led by a steep drop in employment.
The latter could bode ill for the official labour figures due out on Thursday. Analysts were already looking for the unemployment rate to climb to 5.7 percent in May, reversing a surprise dip to 5.4 percent in April. "The key message on employment is that we should expect further rises in the unemployment rate," said Oster.
Yet a separate survey on job advertisements suggested hiring intentions were finally starting to stabilise after a string of dismal months. The survey by Australia and New Zealand Banking Group showed total job ads dipped 0.2 percent in May from the month before, the smallest decline in 13 months.
"Job ads finally show signs of a bottom, giving some confidence that the labour market should also bottom over the next six months," said George Tharenou, an economist at UBS. The official job data seemed to hint at something by showing a surprise increase in employment of 27,300 in April. But analysts suspect all that will be reversed in May with a 30,000 drop, leaving a lot riding on the outcome of that report. The figures are due at 11:30 am (0130 GMT) on Thursday.