Below trend growth to continue
Confidence falls on virus fears.
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The June survey was conducted through the period of rising cases in NSW and the early part of the subsequent lockdowns both there and in other states. Unsurprisingly, business confidence has taken a hit. This was particularly evident in NSW and Qld but confidence was generally softer elsewhere. Rec & personal services, which bears the brunt of social distancing and lockdowns, also took a large hit to confidence and is back in negative territory. That said, overall confidence remains around twice its long-run average after strengthening in early 2021. Business conditions also saw a sharp fall in the month, driven by a weaker read for Victoria. This likely reflects the impact of the lockdown that started in late May which was eased in a series of steps over June. Conditions generally remain elevated across the states despite the broad-based weakening in the month. Overall, the survey points to a solid outcome in the June quarter for economic activity – and continues to reflect the support of both fiscal and monetary policy. The experience of lockdowns to date, is that there is a fairly rapid rebound in activity as restrictions are removed – and with most survey indicators still at high levels, the hope is that there is no material easing in hiring and investment intentions which have been critical to the recovery. However, as the economy passes through the rebound phase and into a new period of growth, we would expect some normalisation across the survey variables. We will continue to watch both capacity utilisation and forward orders, which pulled back in the month but are still elevated, alongside confidence and conditions as the economy again enters a period of heightened uncertainty.
Business conditions fell by 12pts to +24 index points in June after reaching a new high last month. The decline in conditions was driven by falls across the trading, profitability and employment sub-indexes. Despite this pull-back, business conditions and its components all remain elevated following the gains seen earlier in 2021.
“After reaching a record high last month, business conditions pulled back in the month. The decline in conditions was broad-based across states but led by a significant decline in Victoria coming off the back of the lockdown that started in late May but was eased, in a series of steps, over June”.
“The decline in conditions was driven by a pull-back across all three subcomponents – though the impact was largest on trading conditions and profitability. Our experience over the past year is that the short sharp lockdowns have an impact primarily through the activity related variables, while employment takes a little long to respond. That said, despite the pullback in the month, conditions and all of its components remain elevated” said Mr Oster.
Business confidence also declined 9pts in June, to +11 index points, led by a softening in NSW and Qld, and particularly in the service industries. Though confidence has declined by 13pts over the past two months, it remains around twice its long-run average.
“Confidence took a hit in the month with the survey undertaken in the week of the NSW lockdown and with some overlap to brief shutdowns in the smaller capitals. The threat of closing borders also appears to have weighed everywhere” said Mr Oster.
Forward looking indicators were softer in the month with both forward orders and capacity utilisation pulling back– but remaining high.
“Overall, there has definitely been a pullback across the range of variables in the survey this month including a small softening in forward indicators. The hope is that, as like previous episodes of shutdowns, that businesses bounce back on reopening. While, there is less fiscal support around, businesses conditions have been strong in recent months and hopefully the recovery continues”.
“The business survey over the June quarter points to another solid outcome for activity, as the recovery transitions into a period of new growth. While growth will likely print at a slower pace from here, we continue to expect solid outcomes this year – and any lingering impacts of the lockdowns are more likely to impact the Q3 data” said Mr Oster.
“For now, the capex and employment variables remain well into positive territory. The hope is they stay in a healthy range even as growth normalises with business expanding into the new phase of growth.
For more information, please see the NAB Monthly Business Survey (June 2021)
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