LABOR'S May budget appears to have sparked an extraordinary wave of renewed business confidence that has neutralised months of negative sentiment.
The National Australia Bank business survey conducted in the weeks after the budget saw the confidence index jump from minus 14 to minus 2, meaning that the number of optimists is now close to matching the number of pessimists.
The jump in confidence is the biggest in almost a decade.
"The recovery is broadly based but particularly marked in domestically driven industries, with notable improvements in the construction, manufacturing and wholesale sectors, which have taken heart from the infrastructure spending," said NAB chief economist Alan Oster. "The budget has clearly raised hopes of a government investment-led recovery, with construction industry confidence leading the way."
Prime Minister Kevin Rudd welcomed the turnaround, declaring it to be "a strong indication … that the Government's investment in the economy is having an effect" and it "suggests that Australian businesses can see some light at the end of the tunnel".
But the NAB survey also shows that while confidence has jumped, most objective business conditions are deteriorating. Forward orders, trading conditions, employment and export sales all worsened in May, with the impact of improved overseas economic conditions dented by the rising Australian dollar.
NAB is forecasting a contraction in the economy in the June quarter and further interest rate cuts before the year's end as conditions deteriorate.
The ANZ measure of job advertisements for May shows vacancies stabilising at levels "consistent with outright declines in employment throughout the rest of 2009".
Employment figures for May to be released tomorrow are expected to show renewed job losses after a dip in the unemployment rate from 5.7 per cent to 5.4 per cent in April.
The Melbourne Institute consumer confidence index to be released this morning will indicate the extent to which consumers share the optimism of businesses about the budget.
Access Economics warns of an end to the boom in consumer spending brought on by the series of multibillion-dollar hand-out, predicting a "tough 18 months" for shopkeepers.
"The focus of the stimulus in the budget has shifted from cash hand-outs to infrastructure, and the prospects for further stimulus packages are more limited. That means that retail sales growth will be driven more by the underlying economic fundamentals, which are not strong," the report states.
Access predicts no growth in retail sales in real terms until 2011.
In a separate study, BIS Shrapnel warns that even after consumer spending recovers, retailing will remain "much less lucrative" than in the past.
"Households won't go through the same debt build-up that drove retail growth earlier this decade. And with governments focusing on reducing debt, there won't be tax cuts to boost household disposable income," the report's author Frank Gelber says. "Retail margins are unlikely to reach the dizzy heights of the golden age."
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