Business conditions and confidence both edged down in February, according to the National Australia Bank monthly business survey.

NAB said this outcomes suggests the economy continues to grow below trend. The tick down in activity entirely reflects a modest fall in profitability of firms, partly offset by an improvement in employment conditions.

 While conditions remain difficult for many industries, especially construction and manufacturing, there are signs that consumers may have become less cautious in response to recent improvements in equity and housing markets, with recreation & personal services, retailing and wholesaling all improving in the month.

Retail and wholesale conditions strengthening in early 2013, to be much better than the very weak levels reported in the final months of 2012 – albeit conditions in these industries remain poor overall. The turnaround in activity in these discretionary spending sectors is consistent with official ABS data, which showed strong retail trade growth in early 2013.

Meanwhile, overall confidence was strongest in finance/ business/ property (+12), transport & utilities (+4) and retail (+2).
Price inflation remained very subdued, with the softness in inflation consistent with soft activity. Combined with a strengthening in purchase cost pressures, the survey implies further pressure on margins. This is particularly apparent in retail where prices were flat.