Below trend growth to continue
Ivan Colhoun, NAB’s Chief Economist, Markets, talks through the findings in the latest NAB Business Survey.
• How confident are businesses? The business confidence index fell 2pts to +4 index points in October to be just below average.
• How did business conditions fare? The business conditions index also fell 2pts to +12 index points, though remains well above its long-run average of +6 index points.
• What components contributed to the result? The employment index declined 4pts to +7 index points in the month, and profitability fell 2pts to +12 index points. The trading conditions index edged up 1pt to +18 index points in October.
• What is the survey signalling for jobs growth? The employment index (based on historical patterns) is consistent with jobs growth of about 20k per month, which taken at face value would be enough to see the unemployment rate decline further, albeit at a slower rate than over recent months.
• Which industries are driving conditions? The decline in conditions was broad-based across industries with the exception of construction, wholesale and transport & utilities. In trend terms, conditions remained highest in mining, finance, business & property services, construction and manufacturing. Retail – already the weakest across all industries – weakened further in the month and remains the only industry to report deteriorating conditions.
• Which industries are most confident? Confidence (in trend terms) remains highest in mining, followed by manufacturing. Retail and wholesale confidence remain weakest, likely reflecting persistently weak conditions in the industry.
• Where are we seeing the best conditions by state? Conditions (in trend terms) remain most favourable in the eastern states with Vic (+17) leading the way, followed by QLD (+15pts) and NSW (+13pts). Conditions are now weakest in Tas (+9) which has pulled back over recent months. With SA and WA at +10 index points, all states remain above average.
• What is confidence like across the states? In trend terms, confidence is highest in SA (+9), followed by WA (+8), QLD(+6) while NSW continues to lag (+2).
• Are leading indicators suggesting further improvement? The forward orders index was stable in the month at +3 index points – just above average. Capacity utilisation edged lower for the second month in a row, but remains at a high level after trending up over recent years.
• What does the Survey suggest about inflation and wages? Both purchase costs and final products prices (including retail prices) edged up in the month, while labour costs (a wage bill measure) ticked down. The building price pressures evident in these survey measures through mid-2018 appear to have abated over the past two months. Overall, while the survey suggests ongoing employment growth, labour costs growth remains relatively contained and with weak conditions in retail at present, consumer price rises are likely to remain meek.
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