Our podcast series to accompany the NAB Monthly Business Survey continues, giving you a 10 minute summary of the key survey developments this month. To listen, just click the link below.

Overview

Business conditions unwound most of the previous month’s gains – mainly reflecting a weakening in the employment index, though trading and profitability were also weaker. This likely reflects that in a levels sense, activity remains weak, and that there is some way to go before a full recovery can occur. Though confidence rose in the month, it remains very weak and likely fragile. Uncertainty around the virus and the global economy remains high, as does the path to a reopening domestically. The impact of the Melbourne stage 4 restrictions on activity is evident in Victoria with a decline in conditions – though not as bad as feared. Encouragingly, confidence in Victoria improved in the month, likely reflecting an improvement in case numbers.

That said, Victoria continues to show the weakest confidence and second worst conditions across the states. Of some concern however, is that the decline in conditions in the month was broad-based across states, with Qld, Tas and SA showing steeper declines than Victoria. Forward orders and capacity utilisation softened slightly but more importantly remain very weak in a levels sense. Capacity utilisation – a measure of the level of activity – remains around 5ppt below its long-run average, with all industries below average and only WA and Tas having rebounded to pre-COVID levels. This suggests that there is some way for the economy to see a full recovery. Only then can capex and employment intentions rise.

Highlights

• How confident are businesses? Confidence rose 6pts to -8 index points after declining sharply last month.
• How did business conditions fare? Conditions fell 6 pts to -6 index points.
• What components contributed to the result? The decline in conditions was driven by a sharp (-11pt) fall in the employment index, though trading (down 3pts) and profitably (down 4pts) also softened in the month.
•  What is the survey signalling for jobs growth? The employment index lost a fair degree of the recovery seen in recent months and is again deeply negative. At face value this points to ongoing labour shedding by businesses.
• Which industries are driving conditions? Conditions fell sharply in mining, manufacturing and rec & personal services in the month, while wholesale saw a more modest decline. Construction, retail and finance, business & property services saw an improvement. Overall, conditions remain most favourable in retail, followed by wholesale. Conditions are negative in all other industries, with mining, construction and rec & personal services the weakest.
• Which industries are most confident? Confidence is negative in all industries despite improvements outside of mining and rec & personal in the month. Given the size of the current economic shock, confidence remains tightly bunched across industries outside of the mining sector. Confidence is weakest in mining and least worst in finance, business & property.
• Where are we seeing the best conditions by state? Conditions declined in all states except NSW which edged higher. Interestingly, weakness was evident not just in Vic, but also in QLD, Tas and SA, where conditions fell sharply. WA saw a more modest decline. Overall, conditions are weakest in Qld and Vic, while Tas and WA are the only two states in positive territory.
  • What is confidence like across the states? Confidence rose in all states except WA. NSW and Vic saw the largest gains but remain the weakest across the states.
  • Are leading indicators suggesting further improvement? Forward orders weakened and capacity utilisation edged lower (and remains very low) – and alongside the weak level of confidence, suggest that conditions may deteriorate further.
  • What does the survey suggest about inflation and wages? Labour costs (a wage bill measure) growth remained negative while final products prices and input costs also suggest inflationary pressure remains weak.

For more information, please see the NAB Monthly Business Survey August 2020 and the NAB Monthly Business Survey August 2020 (Media Release).