Tonight’s 2010-11 Federal budget will be framed against a national economy showing signs of tiredness in some areas, solid growth though in Asia, but a worrying questioning of sovereign debt coming out of Europe.
China’s exports continue rising strongly, as did imports in April, Europe hopefully has saved the euro, with massive help from others and at home job ads, business conditions and confidence all fell last month, according to two separate reports released yesterday.
The monthly National Australia Bank’s survey of business conditions and confidence (released a day earlier because of the Federal budget), showed a fall for both back to levels closer to long term averages.
And the ANZ job ads report for April revealed a fall of 1.2%, after March’s 1.8% rise.
The ANZ said the total number of jobs advertised fell to 160,660, with internet job ads falling 1.3% and newspaper ads 0.7% in the month. Despite the fall, job ads are around 15% above the level of April 2009.
"The modest decline in job advertisements in April is not surprising in the wake of two successive rate hikes from the RBA,” ANZ Chief Economist Warren Hogan said in a statement.
The NAB’s business confidence index fell to 13 from 16 in April and business conditions fell to 8 in April from 13 in March.
Both reports confirm the trend in building approvals and retail sales, that conditions in the wider economy have become easier in the past couple of months.
Consumer electronics retailer, JB-HI revealed on Friday that its sales March and April had been as expected and not higher as the market has come to expect from the company. It joined a long line of retailers reporting slowing sales growth in the March quarter.
The NAB’s is the more important report, especially its survey of business conditions, which showed a reversal of many of the gains in March.
It said companies reported that trading was "significantly lower" and profitability and employment also eased. "Forward orders, while still at reasonable levels, (were) down significantly," it reported.
The bank said the fall in business confidence in April was the second in a row.
The level of 13 "however, remains significantly above the long run average (+7 index points) and is now more in line with reported business outcomes."
"In April there were significant falls in retail, construction and transport confidence levels. ,As such, it appears (especially when taken with a sharp fall in retail trading outcomes) that recent rate rises may be starting to impact on confidence levels in interest sensitive sectors.
Against that, manufacturing confidence (and conditions) strengthened significantly.
"Business outcomes across sectors were mixed. There were particularly sharp falls in retail, transport, and construction, partially offset by further strength in finance and (surprisingly) wholesaling.
"Consistent with the above there was a sharp fall in new orders – down 8 to an overall reading of +2 points – with the reading significantly affected by very weak retail orders.
"At the same time stocks increased significantly in April – with the index reading of +7 being the highest since March 2008.
"Given that stocks mainly accumulated in retail wholesaling and manufacturing it could well be that an element of the stock build was involuntary."
That matches up with the slowdown in sales growth reported in March and into April by many retailers.
And with the Government expected to cut spending to around 2% in real terms (with inflation rising to 3% during the year, the budget should be modestly contractionary.
But with the Reserve Bank forecasting a 4% rise in national income this year from a surge in commodity export income, there could be a need for more spending cuts.
One or two things are certain. The budget will be back in deficit faster than expected and the country’s debt will fall faster than expected.
It will in the year to June, 2010 and in the year to June 2011, so long as China doesn’t catch a severe cold and slow sharply.
So watch the monthly economic figures from China and keep abreast of what’s happening in that country’s property market.
The April figures are out today.
Footnote: Last year the Federal Government forecast a record deficit of $57.7 billion or 4.9% of GDP, for 2010 financial year and a $57.1 billion deficit for 2011.
The best estimate around for deficit is around $US42 billion, give or take a couple of billion.
GDP was forecast to shrink 0.5% in 2009-10, while unemployment was projected to peak at 8.5% by the end of 2010.
In contrast, the economy grew by 1.2% during just the December, 2009 half year and the current unemployment rate is 5.3% (it might change in Thursday’s April figures) after hitting a high of 5.8% from June to October last year.
