The Australian economy is travelling pretty well according to the widely regarded National Australia Bank monthly survey for March which showed a sharp improvement in business conditions to their highest level in eight years – in fact since the GFC.
And while that lift failed to translate to higher business confidence, it was the second surprise lift in conditions this year – after January’s big improvement. But the survey doesn’t provide any answers to the real, nagging issue for the economy at the moment – slow employment growth, slow wage growth and weakish consumer demand.
In fact if wages were growing around 2.5% (and not drifting sideways at 1.9% a year) and jobs growth back to where it was in late 2015 and early 2016 (when of over 200,000 jobs were added in a year), there would be general agreement that the economy was verging on a boom. It is clearly not and focusing on housing policy in the budget and anything else that comes to mind based on headlines, won’t seen any real improvement.
The Reserve Bank is baffled, Treasury is floundering and think tanks and independent analysts are without any answers from the private sector.
The jump in business conditions came as a surprise, according to NAB chief economist Alan Oster, who said that could have been partly due to a lower response rate in cyclone-hit North Queensland. “Even so, conditions have improved almost across the board to levels that suggest a strong economy in the near-term,” he said in yesterday’s release from the bank.
He said most industries were showing improved business conditions, with services the stand-out performer and the long-struggling mining industry improving thanks to higher commodity prices and an improved global demand outlook.
Retail conditions gone against the trend and dipped – which is not unexpected given the shock sales and earnings downgrades from companies at different ends of the retail spectrum – discounter The Reject Shop, and luxury brands seller, OrotonGroup. But for retailers like JB Hi Fi, there is no discernible signs of a slowdown. Retail is patchy.
Mr Oster said the results were encouraging for the near-term outlook and supported the bank’s forecast for economic growth to accelerate in the second half of 2017. “Leading indicators were reasonably solid in March, with the capacity utilisation rate lifting, consistent with a solid read on capital expenditure, while forward orders also rose in the month.
According to Mr Oster, “forward orders suggest positive near-term prospects for the economy, and even though business confidence has been relatively muted relative to business conditions, reads on business investment from the Survey have managed to strengthen”.
That’s good news for the budget, but what about jobs and wages… the two central mysteries of the way the economy is travelling at the moment?
"However, there is still cause to be cautious about the longer-term outlook, particularly as other growth drivers, including LNG exports, commodity prices and housing construction, begin to fade," he said. “Meanwhile, the RBA has emphasised its financial stability concerns, which are expected to keep them on hold for the foreseeable future,” Mr Oster added.
While many economists expect the March jobs figures on Thursday to show a bounce back from February’s weakness, no one will be convinced because the growth has been in part time, not full time jobs.
Retail sales remain weak with growth tepid, housing finance is solid, but easing, as are building approvals. The economy is seeing near record trade surplus (in December and February and the trade account is more than $6.6 billion in surplus over the first eight months of the year. Iron ore prices are down 20% from recent highs, but still higher than a year ago at around $US70 – $US74 a tonne.
But that is now down from the end of 2016 level of around $US84 a tonne. Coal prices are high after the last week’s hit from Cyclone Debbie and associated flooding and those hopes for a $4 billion bonus in the budget from higher commodity prices might prove to be illusory as the year goes on and global production and demand rebalance.
