More evidence that the economy is doing better than many worryworts believe.
Official figures for January and February have already shown solid growth in building approvals and housing finance, car sales for the first quarter were at new highs, retail sales for the first two months of the year were stronger than expected, business lending is rising at its fastest rate in six years and yesterday the National Australia Bank’s monthly surveys of business confidence and conditions showed a rebound from lows in February.
NAB’s much-watched business survey, which covers 400 companies across most sectors, found a 3-point improvement in confidence to 3 index points, and a 4-point lift in conditions, to 6. Both trading and profitability improved, and there was also a small uptick in employment, according to the survey.
The NAB said the February interest rate cut and the easing of tensions over the leadership of the Liberal Party seems to have helped boost confidence from the zero reading in February.
By industry, there was a surprisingly strong improvement in conditions for the ‘bellwether’ wholesale industry, while construction improved significantly as well. In contrast, mining and retail were the only industries to record a (slight) deterioration.
The export index is yet to respond to the more favourable Aussie dollar, while orders are soft (and down slightly). Capacity utilisation and capex, encouragingly, both improved, the NAB survey showed.
A surprise rise in mining confidence in March helped lift NAB’s overall measure, but the retail sector’s score dipped into negative territory for the first time in two years as uncertainty over government policy made consumers anxious, NAB said.
The improvement in mining industry conditions came despite another bad month for the iron ore industry and weak oil prices, which helped maintain confidence in this industry at the lowest level.
The bank’s monthly business survey also showed business conditions improved in March, jumping from two points to an above-average six.
But improved conditions were very much a recent development, NAB economists said, and need to be repeated for several months before they can be taken seriously.
"The big picture in Australia is still one where the non-mining sector is struggling to offset the impact on domestic demand of sharply lower mining investment," they said.
NAB chief economist Alan Oster, however, warned that the recovery was weak and patchy. He attributed the turnaround to the Reserve Bank’s monetary stimulus, but cautioned that overheating property markets could check further easing.
"Low interest rates are continuing to have a notable impact on the particularly sensitive sectors of the economy, like investor housing, but pass-through to the broader economy has been somewhat limited," he said.
"The lack of a turnaround in non-mining investment intentions – both according to Australian Bureau of Statistics and NAB data – is still a major concern, while a reacceleration in Sydney house prices suggest that the RBA’s capacity to stimulate investment via monetary channels could be severely constrained – they already consider interest rates to be uncomfortably low.
"Nevertheless, business credit growth has improved in recent months and ABS data on retail sales are suggesting that consumer spending may be a little better than expected," he said.
NAB expects another rate cut, most likely in May, as the RBA tries to balance its concerns over weak non-mining investment and the booming Sydney housing market.
