wallydownundy

National Australia Bank released its monthly index of business confidence. March 2009 saw the second month of increases - albeit from a low level. While optimists are increasing in number, the Bank forecasts further economic deterioration. They foresee unemployment at 7.75% - up significantly from today’s 5.4% figure. (Note NAB forecasts a growth in unemployment when this month unemployment fell unexpectedly from March’s 5.7% figure.)

NAB also sees Reserve Bank rates being slashed in 25 basis point increments until we reach an official interest rate of 2% (now at 3%).

The report highlights include:

• Business confidence improves for second month in a row – albeit still at depressed levels.
• Business conditions marginally higher but still trending down in all areas – with employment a key area of weakness. Confidence reading now more in line with outcomes, and less driven by fear.
• Forward orders also higher but still at recessionary levels. Stocks continue to be run down.
• Employment and capacity utilisation fell further. Exports and capex still weak.
• Overall Survey still points to falling demand in Q1 – that is, further negative growth.
• Global forecasts for 2009 unchanged at -1% and 2.3% in 2010. Near term risks, however, still down.
• Australian forecasts also remain unchanged at -1% in 2009 – with key drivers: falling private consumption & investment and weaker exports. GDP in 2010 also unchanged at a touch below 1%.
• Unemployment now to rise to 7¾% in 2010. Risks to activity and rates still on the downside.
• RBA now in data watching mode but not finished. We still see the bottom for cash rate at 2% in late 2009 - with the RBA to cut by a series of 25 pt moves as growth and unemployment deteriorate.

It may be that the economists at National Australia Bank have been watching their own share portfolios dwindle. On 12 May 2008 shares in NAB closed at $34.38 - by 9 March 2009 they bottomed at $16.03. Last night the shares closed at $22.42 representing a 35% decline year-over-year.

Then again the old joke making the rounds these days is, “How do you spot an optimistic banker? He’s the one who irons five shirts on a Sunday night.” But if the shirts are Herringbone he probably bought them cheap from the company liquidator.  (Even Herringbone is optimistic having been sold to a German clothier - Das ist gut, nicht wahr?)