Business conditions jumped sharply last month, but business confidence fell in a conflicting reading from the latest monthly survey of business from the National Australia Bank.
In fact the rise in business conditions was the largest so far seen in the history of this survey (which is more than a decade).
And it is the second large rise in business conditions reported in the NAB survey in a couple of months.
The conditions index surged 12 points to 13, from September’s reading of one.
“Clearly the most surprising feature of the Survey was the sharp jump in business conditions in October,” the NAB said.
"The improvement driven by sales and profits was relatively broad based – unlike the (short-lived) jump in July.
“While welcome we remain cautious re the sustainability of the improvement.
"For example it does not sit well with further falls in business confidence and only marginal improvement in capacity utilisation.
"While the falling AUD may have helped many sectors, it is probably also behind the large falls in the wholesale and transport/utilities sectors.
“The jump in conditions also saw employment improve somewhat – consistent with other labour market partials (indicators),” the NAB wrote in its report.
That makes the dip in confidence puzzling (leading you to think the rise in conditions might be too high), because the NAB points out that it is the first time confidence has dropped under conditions in the index for more than two years.
“This is the first time since 2012 that confidence has dropped below conditions, suggesting firms remain uncertain over near-term demand in their industry."
NAB’s survey puts confidence at four index points, down from last month’s five and seven in August.
"Confidence levels vary greatly across industries, but services have consistently been the most optimistic.
“To complete the mixed messages about the future, forward orders improved significantly but conditions in the ‘bellwether’ wholesale industry are still quite weak,” the NAB wrote.
As far its economic forecasts are concerned, the survey had no really significant impact. The NAB lifted its 2014 GDP estimate a touch to 2.9% (annual), from 2.8%, but it still sees unemployment peaking at 6.25% and no change in the RBA cash rate until late next year.
The NAB said that while October’s jump in business conditions “points to strong start to Q4, growth (is) still constrained by weak terms of trade, soft labour market and signs of a softening in building cycle”.
