Another day, another sign the economy is struggling.
Despite record-high infrastructure spending and a trio of interest rate cuts, business confidence is tracking well below its long-run average, according to NAB’s latest Monthly Business Survey.
And that means wages won’t pick up anytime soon.
The survey of 400 non-agricultural businesses registered a slight uptick in business confidence and conditions in October, with the mining, construction and services sectors leading the improvement.
But NAB chief economist Alan Oster said the overall survey – which marked the seventh consecutive month of below-average confidence – suggested the private sector was stagnating.
Economic conditions aren’t getting worse, but neither are they improving, he said.
In fact, when the public and export sectors are excluded from the equation, there’s no growth at all.
Which is why Mr Oster believes the government needs to pump more money into the economy.
“Overall, our read is that the survey continues to point to weak outcomes in the private sector, and that business’ own outlook is for more of the same,” he said in a podcast.
Asked what was needed to boost business confidence and conditions, Mr Oster said “support from the government”.
“You need fiscal policy,” he said.
“You could talk about bringing forward stage two of the tax cuts. You can talk about doing more maintenance on infrastructure.
“You could talk about giving people on the dole an increase – because they haven’t had a big increase for ages. And the one thing you know is, if they’re on the dole and you give them more money, they’ll spend it.”
It’s not all doom and gloom, though.
Forward orders – when a business orders more stock – rose in the month, and are now above the long-run average.
Mr Oster said this “may be pointing to a stabilisation in conditions” just around the corner.
AMP Capital senior economist Diana Mousina said the survey results showed economic conditions “were soft, but not around recessionary levels”.
She told The New Daily that businesses were feeling pessimistic about the economy because consumers had cut back on spending despite three interest rate cuts, record-high infrastructure spending, and the government’s low-and-middle-income tax offset.
“Even though we’ve seen that the rate cuts have worked to stimulate the housing market, it hasn’t really fed through to the consumer sector – and you can see that in retail sales,” Ms Mousina said.
A lack of consumer spending is discouraging businesses from investing – and that’s dragging down growth and suppressing wages.
“Growth isn’t terrible, but it’s not firing on all cylinders – and that affects consumers ultimately through wages growth, which is what most consumers are worried about,” Ms Mousina said.
“And the longer that we have these below-trend business conditions, then the more likely it is that wages growth will remain subdued.”
Wages grew by 2.3 per cent in the 12 months to June 30, 2019.
That’s already well below the historical average of 3-4 per cent a year.
And Ms Mousina is predicting ABS figures on Wednesday will show annual wages growth slowing to 2.2 per cent in the year to September 30.
As Mr Oster tells it, “it’s not a recession, but it will feel pretty much like a recession for large chunks of the private sector.”
The latest CEO Confidence Index showed business confidence had hit a “new cyclical low” – with 25 per cent of CEOs predicting overall economic conditions in Australia to worsen over the next 12 months, and 61 per cent forecasting them to remain the same.
The Executive Connection’s chief economic advisor Warren Hogan said the “seemingly ineffective policy actions from the government and the RBA, uncertainty about the global economy and a persistently negative economic narrative” was eroding business confidence.
But he said the pessimism hadn’t impacted the size of the workforce, “with most businesses expecting to invest and hire staff in the year ahead”.