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Service sector set to be the winner as business confidence rises

Tuesday, 26 October 2010 | By Michelle Hammond
Business confidence is now back at pre-GFC levels according to NAB's latest quarterly business survey, with a leading economist tipping business services as a key sector for start-ups to watch.


The survey shows confidence is strongest in business services, transport and recreation sectors, and poorest in retail, wholesale, property and construction.


But while firms are feeling upbeat, actual business conditions remain patchy.


The survey showed business conditions in the transport and recreation lifted across the quarter, while conditions in property services, mining, finance and manufacturing all suffered declines.


However, the new data suggests that the number of businesses planning to increase capital spending over the next 12 months improved marginally in the September quarter.


Average hours worked continues to increase, although the proportion of firms concerned about labour shortages is stable.


NAB macroeconomist John Sharma says he's particularly impressed by the performance of the business services sector, which encompasses legal and accounting services, computer services, marketing and business management services, and property services.


Confidence in those sectors is strong, suggesting good growth into 2011.


Sharma says it's an ideal sector for small start-ups to enter, providing they can tap into a niche market.


"If someone's got a good proposition in business services and they can carve out a niche for themselves, I think that would be good," he says.


Sharma's comments are substantiated by a the latest private business barometer from accounting firm PwC. Business services firms survey for the report forecast profit growth of 26% in the next 12 months and 33% over the next three years.


Based on the research, Sharma says companies in the business services sector are likely to enter 2011 with a solid outlook.


"They're likely to boost their capacity [and] perhaps employ more people," he says.