Growth, inflation and labour market all easing
Conditions at a record high in Q2.
Business conditions rose strongly in the Q2 Business Survey. Conditions increased 12pts to +32, a record high for the survey. This was also true of all the sub-indices of business conditions – profitability, trading and employment are now all well into expansionary territory. In contrast, business confidence eased slightly (from +19 to +17) but remained well above its long-run averages.
According to Alan Oster, NAB Group Chief Economist “Business conditions were still in negative territory in Q3 2020, and now, three quarters later, they were at a record high, a testament to how rapid the recovery has been from last year’s recession”.
“A pleasing aspect of the survey is how broad-based the strength in conditions and confidence was – whether you look by industry or by state they are all above average, and in many cases well above.” said Mr Oster.
Forward orders lifted notably and now sit just below survey highs, and expectations for orders in 3 months time were unchanged at an elevated level. Capacity utilisation spiked, reaching its highest recorded level, and capex expectations 3 months and 12 months out also increased and are at high levels. Expectations for employment, profits and trading conditions in 3 and 12 months also generally improved.
“Another pleasing aspect of the survey is the continued strength in leading indicators, which points towards robust growth continuing. In particular, elevated capacity utilisation, and expectations around employment and capex, all point to businesses continuing to invest and hire staff.” said Mr Oster.
The survey was conducted over 18 May to 10 June, so responses only partly capture any impacts from the Victorian lockdown that effectively started on 28 May.
According to Mr Oster “A cautionary note around the survey is that it only partially covered the Victoria lockdown that started in late May, and obviously precedes the current lockdowns in NSW, Victoria and South Australia. So, while the forward indicators point to strong outcomes through Q3 and beyond, current activity is likely to be disrupted until these lockdowns end”.
“The survey also indicates that prices and cost inflation is increasing. Businesses are also reporting that finding suitable staff and materials are growing constraints on output.”
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