Budget: no news is good news

It would seem that the more the Federal Government Budget hits its head against a stonewall in the Senate the better everyone feels about the future.

The latest numbers on Australian business confidence from the National Australia Bank show a rise to 11 in from 8 in June of 2014. As a way of comparison business confidence in Australia averaged 5.83 from 1997 until 2014, reaching an all-time high of 21.10 in May of 2002 and a record low of -31.60 in January of 2009 as the full effect of the GFC it home .

The NAB monthly survey of business confidence is based on a telephone survey of around 350 small, medium and large size Australian companies. It measures the expectations of business conditions for the upcoming month and is a simple average of trading, profitability and employment indices, reported by respondents for their company. The indices are calculated by taking the difference between the percentage of respondents nominating good or very good – or a rise – and those nominating poor or very poor, or a fall.

Delays in the passing of contentious federal budget measures through parliament appear to have boosted consumer confidence, although business would have taken solace from the axing of the carbon tax.

At the other end of the spectrum the Westpac Melbourne Institute Index of Consumer Sentiment has also shown a rise of 5.9 per cent in the past three months, restoring it to levels just below its pre-budget levels in April.

The consumer sentiment index for August is now 98.5 points, after hitting a post-budget two-year low in May. The index has stayed below 100 points for five consecutive months, meaning there are more pessimists about the economy than optimists.

It appears the longer the senate blocks the more controversial, and expensive, revenue-raisng measures in the budget the more likely  people are to open their wallets and start spending.

There is now a growing consensus within the Federal government that it might have to completely redo the numbers to make them more acceptable to the minority parties in the upper house and and easier to sell to the electorate at large.

Low interest rates in a strong housing market should also continue to underpin better spending numbers in the second half of this year. (The Commonwealth Bank again cut its fixed interest mortgage rate this week.)

The only worrying sign in the marketplace was the jobless number of 6.4 per cent in July. Business hiring intentions, especially in the small to mid-size sector, will be closely monitored in the coming months.

The Westpac-Melbourne Institute unemployment expectations index showed job security fears eased by three per cent in August, but the survey was conducted the same week that the July employment data was released.

More recent retail numbers are still volatile with consumer confidence data from ANZ and Roy Morgan showing a fall in sentiment in the past two weeks, amid concerns over global tensions and higher unemployment.

The great unknown is when the US Federal Reverse will start tightening interest rates in the United States. This would have a flow-on effect in Australia and could force the Reserve Bank to consider a lift in Australia which might initially dampen growth.

Latest figures from the US show the recovery might be taking breather which would likely force any interest rate move into next year.

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