NAB Quarterly Business Survey – March 2016

The March quarter NAB Business Survey shows both a resilient non-mining recovery and an outlook that has continued to improve. Both business conditions and confidence remained at levels similar to that seen in the previous quarter.

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The March quarter NAB Business Survey shows both a resilient non-mining recovery and an outlook that has continued to improve. Both business conditions and confidence remained at levels similar to that seen in the previous quarter, and the NAB Monthly Business Survey suggested even stronger momentum towards the end of Q1. Robust conditions and business confidence are translating into rising employment demand and improved investment intentions.

Business environment remains robust and firms are hinting at an improving outlook, despite significant global uncertainty.

The NAB Quarterly Business Survey for Q1 2016 provides insight into how firms were fairing following the flurry of financial market volatility early in 2016. Despite all the ups and downs in financial markets, firms have been remarkably consistent in their assessment of the business environment – which is a generally a positive one.

“We find it encouraging to see that firms are continuing to look past all the ‘noise’ in financial markets to focus on what is going on at home, and in their own business”, said NAB Group Chief Economist Alan Oster. According to Mr Oster, “persistent market volatility could eventually start to have an impact on the economy via sentiment channels, but at this stage firms actually appear more optimistic about the outlook”.
In Q1 2016, both business conditions and confidence eased modestly, to +9 and +5 index points respectively, but these are still solid outcomes – especially in the current global context – particularly for business conditions, which remains well above long-run average levels. This result is not overly surprising, however, with the NAB Monthly Business Survey suggesting both conditions and confidence gained even more momentum late in the quarter – pointing to a non-mining recovery that is gaining traction and becoming more broad-based.

However, the real insight from this survey is how firms perceive the outlook facing their business and the economy. According to Mr Oster, “firms are actually telling us that they not only remain quite upbeat about the outlook, but they have revised up their expectations relative to last quarter”. This optimistic view of the outlook suggests good things for the labour market and future investment.

Leading indicators were generally quite positive in Q1 2016. An increase in capacity utilisation and capex plans for the next 12 months suggest a more positive outlook for non-mining business investment, while stronger employment intentions point to further improvement in the labour market. Forward orders are holding up at positive levels, although are below average, and expectations for conditions in 3 and 12 months’ time improved.

On a less positive note, the RBA has recently flagged the risks emerging from property markets as unprecedented levels of new apartment supply enter the market. “We are certainly starting to see this in the business survey, with residential construction firms recording a notable decline in confidence recently”, said Mr Oster.

The Survey is also continuing to show very moderate inflation pressures across the economy – although there are some signs that wages are stabilising. While the RBA have flagged that low inflation pressures give them scope to cut interest rates if necessary, Mr Oster says that “business conditions at these levels do not justify a rate cut at this stage, in our view”.

For further analysis download the full report.

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