Business conditions fell sharply in December, and while caution should be taken when interpreting data around the Christmas/New Year period, this outcome continues the downward trend in conditions over the second half of 2018. At face value, the fall over the past 6 months suggests a significant slowing in the momentum of activity in the business sector – especially from the highs seen earlier in the year.

The deterioration in conditions in the month was driven by declines across trading, profitability and employment and was relatively broad-based across states and industries. Conditions remain particularly weak in the retail industry which reports further ongoing deterioration. Capacity utilisation remains above average, though forward orders are below average (and falling) and alongside below average confidence suggests conditions are unlikely to rebound. Monitoring the future conditions and orders track will be critical regarding our outlook for the economy in 2019.

Podcast

This month 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.

Highlights

• How confident are businesses? The business confidence index was unchanged at a below average level of +3 index points in December. Business confidence has now been below its long-run average level of +6 index points since Q4 2018.
• How did business conditions fare? Business conditions fell sharply – down 9pts to +2 index points in December. This is the largest monthly fall since the GFC and declines were broad-based across states and industries – nonetheless some caution should be taken when interpreting individual monthly moves.
• What components contributed to the result? The result was driven by declines in all sub-indexes with employment falling 5 pts to +4 index points, profitability falling 8pts to 0 index points and trading conditions declining to +7 index points.
• What is the survey signalling for jobs growth? At face value, the decline in the employment index suggests a slowing in the pace of employment growth to 18k per month from 22k per month.
• Which industries are driving conditions? Mining continues to see the most favourable conditions across industries by some margin (+22 in trend terms). Retail is weakest, and continues to be the only industry to record negative conditions in trend terms suggesting an ongoing deterioration in activity in the sector. See page two for a breakdown of developments by industry over the past 6 months.
• Which industries are most confident? Confidence (in trend terms) remains highest in mining – though this has eased in recent months. The remaining industries are currently at or below average with confidence now lowest in Finance, business & property services.
• Where are we seeing the best conditions by state? Across the mainland states, conditions remain most favourable in the east, with VIC, QLD and NSW recording the strongest conditions. Tas is also currently above average but has been volatile in recent months.
• What is confidence like across the states? Of the mainland states, confidence remains highest in SA (+9) and WA (+6), and below average at +2 in NSW, VIC and QLD. Tas – though volatile of late – remains highest at +12.
• Are leading indicators suggesting further improvement? The forward orders index fell to -1 index points, suggesting new orders deteriorated over the month. Capacity utilisation edged lower to 82.0% but remains relatively high after trending upwards in recent years.
• What does the Survey suggest about inflation and wages? Surveyed measures of prices and wages eased in December. Notably, retail prices were flat in the month. Overall, these measures suggest that inflationary pressure remains weak, with final products prices and input prices such as purchase costs and labour costs continuing to track at relatively low levels.

For more information, please see the NAB Monthly Business Survey report below:

NAB Monthly Business Survey: December 2018