NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
Business conditions continue to boom.
Our podcast series to accompany the NAB Monthly Business Survey continues, giving you a 10 minute summary of the key survey developments this month. Listen now.
If listening on a mobile device, click listen in browser.
The survey continues to point to strong outcomes in the business sector, with business conditions resetting their record high for the second month in a row and forward orders also holding at a record level. The employment, profitability and trading sub-components all also reset last month’s highs – with trading conditions now at exceptional levels. By state and industry, the strength in activity is evident everywhere. While business confidence edged lower, it too remains elevated after reaching a record high last month. The survey measure of reported capex rose further suggesting that the strong rise over 2021 is more than just a rebound from disruptions to activity and uncertainty during 2020 and that high rates of capacity utilisation, alongside healthy cashflow and a strong outlook, is flowing through to investment decisions. Indeed, capacity utilisation stayed near its record high set last month. Taken together the survey results over the past two months point to further growth in the economy in Q2, following last week’s national accounts which showed GDP has now risen above its pre-COVID level. The breadth of the strength in the survey is encouraging, as it points to ongoing recovery in the sectors that continue to lag in the national accounts, as well as further growth in those areas that have already recovered.
Business conditions rose to a fresh record high in May (now +37 index points), driven by further gains in each sub-component. Trading rose 6pts to +47 index points, employment was up 5pts to +25 index points and profitability rose 6pts to +40 index points. Business confidence edged 3pts lower to +20 index points but remains elevated.
“The strength we have seen in the survey in recent months has continued. Conditions rose further, and in particular trading conditions are at a massive +47 index points. Confidence was slightly softer but remains very high and the pipeline of work as measured by forward orders held at a high level”.
The gains in conditions in the month were broad-based except for mining and recreation & personal which were slightly lower. In trend terms, conditions are elevated in all industries but are highest in finance, business & property services.
“The ongoing strength in conditions is promising – as it suggests the economy has continued to grow after recovering its pre-COVID level in Q1. The ongoing strength across all industries reflects those that are still recovering but also other sectors such as construction and manufacturing which have moved into a new growth phase” said Mr Oster.
Capacity utilisation edged lower but remains very high. This combined with strong forward orders points to ongoing growth in activity and the likely need to continue to lift capex and hire new workers.
“Overall, this was another very strong read for the business sector – and forward indicators point to ongoing strength in the near-term. This is a pleasing result coming after last week’s national accounts which showed that the economy has now surpassed its pre-COVID level. The economy now appears to be entering a new period of growth after a very rapid rebound”.
“The strength in activity should see further gains in employment and with high rates of capacity utilisation and elevated confidence, we hope that business investment continues to lift. This could see further activity and productivity gains as the private sector takes over once again as the government gradually withdraws stimulus” said Mr Oster.
For more information, please see the NAB Monthly Business Survey May 2021
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.