Business confidence high: NAB

AAP

COMPANIES were caught unprepared for a surge in business confidence and conditions in February, which hit a three-month high as inventories declined and hiring slowed.

The National Australia Bank (NAB) business confidence index also showed a resurgence in businesses needing credit to satisfy expansion plans as the economy gathered steam once gain after the global financial crisis.

The survey's business confidence index gained four points to plus 19 points in February and was the survey's highest level since November 2009 when it also touched the 19 mark, which at the time was a seven-year high.

"The latest survey indicates at least a partial bounce back in both confidence and conditions," NAB group chief economist Alan Oster said in a statement on Tuesday.

"The February survey results suggest that growth momentum in early 2010 is still substantial, albeit somewhat below the very strong demand conditions of late 2009."

The proportion of businesses requiring credit grew to 64 per cent in the month, up from 53 per cent in January.

However credit conditions tightened, with the proportion of businesses reporting difficulty in finding finance up three index points to plus seven.

Business and trading conditions improved five points to plus eight in February, while profitability was plus seven, up from plus two in January.

Mr Oster said the survey showed businesses were caught unprepared for the surge in confidence and business conditions.

"Just as the extent of the slowing in January may have been unexpected, so the uptick in February took many businesses by surprise with some destocking (of inventories) in the face of stronger trading conditions and a slight fall in the employment index."

The survey's employment index slid one point to plus five but was still above long-term average levels, the survey showed.

In trend terms confidence was highest in the mining industry but weakest in retailing and recreation/personal services.

Confidence rose in all major states except Victoria.

Western Australia registered plus 26 index points, while all other states were within a range of plus 12 to plus 14 points.

Mr Oster said the results reflected stronger global demand for commodities and the effect of higher interest rates on consumer spending.

In February, the Reserve Bank of Australia (RBA) held off from raising interest rates after increasing the cash rate by a quarter of a percentage point each in October, November and December.

The RBA lifted the cash rate by another quarter of a percentage point in March, to four per cent.