Healthy business conditions


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By CommSec

NAB Business Survey; Weekly Consumer confidence

  • Business survey: The NAB business conditions index rose from +9.7 points to +12 points in June (long-term average +4.8 points). The business confidence index rose from +3 points to +6.1 points (long-term average +5.7 points). The survey was conducted from June 24-30.
  • Consumer confidence: The ANZ/Roy Morgan consumer confidence rating fell by 0.5 per cent to 115.2 in the week to July 10. The majority of the polling took place last Saturday - more certainty that the coalition would be able to form Government.

What does it all mean?

Aussie business is in good shape. Business conditions are the best in eight years while confidence levels are above “normal”. And more importantly the sub-indices – trading conditions, profitability, and forward orders – all recorded healthy gains. Even more encouragingly the election is now out of the way and it may be that businesses and consumers can now get back to focusing on spending, employment and investment plans.

Interestingly the latest business survey suggests that inflationary pressures are rather mild, leaving the door open for the Reserve Bank to cut rates in August if they deem it necessary. Other data out today shows consumers are still confident. It seems that the uncertainty surrounding the election outcome was not a major factor affecting confidence levels. Consumers are still spending albeit at a slower pace than what was recorded in 2015.

The Australian economy did soften over the first half of 2016, however the economy remains in a solid position. Business conditions and confidence are healthy; the job market is well-balanced; and home building continues to be a key growth driver. The key ingredient now would be a lift in non-mining business investment.

What do the figures show?

National Australia Bank Business Survey:

  • The NAB business conditions index rose from +9.7 points to +12 points in June (long-term average +4.8 points). The business confidence index rose from +3 points to +6.1 points (long-term average +5.7 points). The survey was conducted from June 24-30.
  • In rolling annual terms, the business conditions index rose from +9.7 points to fresh 8-year highs of +9.9 points.
  • NAB noted: “Despite the disruptive nature of these events (evident in the financial market volatility following the Brexit vote), it was encouraging to see that business confidence continued to see support from consistently above average conditions in non-mining sectors.”
  • “The results point to further improvement in the non-mining economy in Q2, with growth potentially becoming more broad-based – although evidence is mixed. This will help counterbalance some of the mining sector headwinds to domestic demand, but is unlikely to be fully offsetting. While the RBA should be reasonably comfortable with the present state of economic conditions, they would also welcome the resilience of business confidence and business conditions in the wake of recent events that cloud the outlook. However, the view on inflation is arguably more important at this juncture, and the Survey is not suggesting any meaningful turnaround in near-term inflation pressures.”
  • Components. The index of trading conditions rose from +17.7 points to +18.5 points; employment rose from +0.9 points to +4 points; profitability rose from +11.4 points to +12.1 points; forward orders rose from +2 points to +3.9 points.
  • Inflationary indicators were higher in June. The monthly reading of labour costs rose at a 0.8 per cent quarterly rate in June, after a 0.7 per cent lift in May. Purchase costs rose at a 0.8 per cent quarterly rate in June, after a 0.7 per cent rise in May. Final product prices were up by 0.3 per cent in June, after a similar rise in May. And retail prices were down by 0.2 per cent in June after a 0.5 per cent gain in May.
  • Capacity utilisation eased from 81.9 per cent to 81.3 per cent, but remains above the long-term average of 81.0 per cent.
  • The proportion of firms reporting that they did not require credit rose from around 49 per cent to 78 per cent in June.

Consumer confidence:

  • The ANZ/Roy Morgan consumer confidence rating fell by 0.5 per cent to 115.2 in the week to July 10. Confidence is up 7.7 per cent over the year and well above the average of 112.4 since 2014. Three of the five components of the index fell in the latest week:
  • The estimate of family finances compared with a year ago was unchanged at +7;
  • The estimate of family finances over the next year was up from +24 to +30;
  • Economic conditions over the next 12 months was down from 0 to -4;
  • Economic conditions over the next 5 years was down from +12 to +9;
  • The measure of whether it was a good time to buy a major household item was down from + 36 to +34.

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

What are the implications for interest rates and investors?

The lift in business conditions will hearten the Reserve Bank. But the trend slowdown in investment and reluctance to take on debt remain a concern.

The Reserve Bank can cut rates further if required from a position of strength. Unlike in the past, there are few concerns that consumers and businesses will go on a borrowing/spending binge.


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