Growth, inflation and labour market all easing
Firms continue to see a favourable business environment, despite pairing back some of the strong gains seen last month.
The NAB Business Survey continues to point to a very favourable business environment for Australian firms, despite giving back some of the strong gains witnessed in last month’s survey. Service industries have persistently been the best performers, although other sectors are looking relatively upbeat – as the benefits of lower oil prices and earlier AUD depreciation continue to flow through. Given these result, we have maintained our upbeat near-term outlook for the Australian economy. However, subdued inflation pressures in the Survey and a very weak CPI result for Q1 suggest the RBA has scope to further cement the non-mining recovery with an additional cut to the cash rate at its next meeting (although it is likely to be a close call).
Firms continue to see a favourable business environment, despite pairing back some of the strong gains seen last month
This month’s NAB Monthly Business Survey saw both business conditions and confidence retrace some of the strong gains witnessed last month, but overall outcomes continue to point to a business environment that is highly favourable to Australian firms. This is helping the Australian economy withstand global uncertainties and the transition through the end of the mining boom. There are also tentative signs that the non-mining recovery is becoming more broad-based, although it is too early to determine whether this recent trends will persist.
“Even though business conditions eased this month, they have remained well above average levels for the past year”, said Alan Oster, Chief Economist. According to Mr Oster, “with consistently good results like these from our survey it is difficult not to have a degree of confidence in the near-term outlook”. Overall business conditions fell by 3 points to +9 index points in April, but remained well above the long-run average of +5. The trading (sales) and profitability components both eased in April, but remain quite positive, while employment held onto the gains achieved last month – suggesting ongoing resilience in the labour market.
Service industries have persistently been the best performers, although other sectors are looking relatively upbeat – as the benefits of a lower oil prices and earlier AUD depreciation continue to flow through. “We continue to look for signs that the recovery is broadening, and while evidence of that was a little less compelling this month, solid results for manufacturing and transport, as well as a bounce-back in retail, are all reassuring” said Mr Oster.
Business confidence was somewhat resilient to the fall in conditions, but ebbed lower in the month. The confidence index eased 1 point to +5 index points in April, but this was marginally below the long-run average for the series. According to Mr Oster, “confidence remains crucial to the outlook, but this was still a reasonable outcome given the added uncertainties around the global economy and the upcoming Federal Budget and election”.
Leading indicators from the survey were somewhat mixed this month, but forward orders regained some lost ground, lifting back into positive territory and suggesting good near-term prospects for activity. In contrast, NAB’s measure of capacity utilisation eased back in the month. “However, the trend remains very much a positive one, which is starting to encouraging firms to invest, and is supporting demand for labour”, says Mr Oster. Indeed, firms indicated that they increased capital expenditure in this month’s Survey.
Following from these survey results, the non-mining recover appears to be on track, suggesting there is no need to fundamentally change our view of the near-term economic outlook for Australia, although this will be reviewed following this week’s Federal Budget. However, subdued inflation pressures in the Survey and a very weak CPI result for Q1 suggest the RBA has scope to further cement the non-mining recovery with an additional cut to the cash rate at tomorrow’s meeting (although it is likely to be a close call).
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