The National Australia Bank says its latest survey of Australian business conditions shows December was another month of buoyant activity, while business confidence also lifted, ending a recent negative trend.
The monthly survey showed profits and sales healthy, along with the outlook for another solid year of jobs growth.
The NAB said its index of business conditions remained steady at a seasonally adjusted +13 in December, still well above the long-run average of +5. Business confidence bounced 4pts to +11 index points, the highest level since last July 2017.
NAB group chief economist Alan Oster said the rebound in confidence “has helped to narrow the perplexing gap between business conditions and confidence evident over the past couple of years, and is an encouraging signal for investment.”
The conditions survey’s measure of profitability rose a point to +15 in December, while its sales index was also up a point to +18.
NAB’s surveys more than 400 firms each month and while measure of employment eased a point to +6 in December, it is still pointing to strong jobs growth of around 300,000 a year, according to the bank’s economists.
Later this morning the inflation data for the final quarter of 2017 and 2017 as a whole will be released and isn’t expected to produce a surprise on the upside.
The NAB showed few signs of inflation increasing or being a concern.
The bank’s economists said the survey’s forward orders measure has “been giving a fairly accurate read of domestic non-mining economic activity as per the official national accounts. Forward orders have pulled back a touch on average in the past three months, although continued to suggest that growth in non-mining domestic demand should acceleration from H1 2017 and maintain that momentum in the early months of 2018.”
Mr Oster said in yesterday’s release “the NAB Business Survey employment index has not experienced the same wild swings in recent years as the official employment survey from the ABS, and tends to suggest the official figures may be currently ‘overstating’ the degree of job creation.
"The employment index implies employment growth of a little less than 300K at present, and a slowdown to around 240K per annum over the next 6 months, or a monthly pace of around 20K per month. While suggesting some pull back in employment growth, this should still be sufficient to see the unemployment rate inch downwards, assuming no further large increase in the participation rate.”
Strong business conditions are broad-based across all major industry groups with the continuing exception of retail. “The construction industry is performing well, thanks to support from a large pipeline of residential construction and stronger non-residential building approvals. Mining has also gone from being a major drag on the index to experiencing above average business conditions”, said Mr Oster
The struggles in the retailing have been well reported in the media and the NAB said yesterday the sector continues to struggle with slightly negative business conditions, indicating a modest rate of contraction in the industry – the weakness is apparent across all the sub retail sectors.
“However, despite the weak conditions, retail firms remain surprisingly upbeat when it comes to confidence. It is not clear what is driving this confidence, but it has been relatively unwavering over the whole of 2017”, said Mr Oster.
“Overall, the Survey results for December remain broadly in line with our view of the Australian economy. There continue to be a number of significant challenges to the outlook, but we remain hopeful that Australia will see temporarily above trend economic growth in coming quarters, thanks to support from improving business investment and elevated levels of infrastructure construction.
"Such an outcome should be sufficient to prompt the RBA to consider a gradual removal of emergency policy stimulus, although the RBA will need to see wages growth move upwards, at least gradually. Softer trends in some corners of the property market may also heighten their caution.
“We maintain our expectation for the first RBA hike to come in the second half of this year, but only if the labour market and wages improve further and the property market holds steady” Mr Oster said.
