Signs the economy might be losing some steam after a slowing emerged in the March monthly National Australia Bank survey of business conditions and confidence released yesterday.
The business conditions index fell 6 points to a still buoyant +14 index points, still well above its historical average. The business confidence index eased 2pts to +7 index points, and it is now only just above its historical average of 6 index points.
NAB Group Chief Economist Alan Oster said in a statement with the survey yesterday that“Not only do the well above average business conditions continue to point to robust business activity in Australia, it is also broadly based as conditions were equal to, or above, their historical average in all industries.”
By component, Trading conditions (sales), profitability and, in particular, employment conditions all fell. However, the NAB said that on a trend basis there was little or no change and all components remain above average.
According to Mr Oster “Historically, the NAB Survey profitability measure has broadly lined up with changes in the ABS measure of non-mining company profits and at its current level it is pointing to further solid gains in reported company profits. Moreover, the employment index is consistent with a solid level of jobs growth of around 21k per month.”
Leading indicators in the survey softened this month, with capacity utilisation easing slightly, while forward orders gave up much of last month’s spike.
“While forward orders and capacity utilisation – important leading indicators – declined this month, on a trend basis they both remain at multiple year highs, a positive sign for the non-mining economy, including employment and investment growth.” Mr Oster said.
Conditions are strongest in mining in trend terms, and are equal to, or above, their historical average in all industries.
According to Mr Oster: “While retail continues to underperform, on a trend basis it reached its highest level in nine months. It was also pleasing to see that personal & recreational services moved higher arresting the recent downwards trend, although we would want to see this continue into coming months to be confident that activity has stabilised.”
Final product price inflation remains muted and retail prices declined. However, purchase cost growth has been moving higher since late 2016. “The gradual trend rise in purchase costs provides a tentative sign of inflationary pressures, although it would need to keep rising to provide a convincing signal that core CPI inflation is about to move back within the RBA’s target band” said Mr Oster.
“The Survey results for March do not change our outlook for the Australian economy. The strength in business conditions and leading indicators are consistent with stronger economic growth in coming quarters and the Survey employment index is pointing to strong jobs growth which should reduce unemployment, and put gradual upwards pressure on private sector wages.
"We expect that towards the end of this year the RBA will be in a position to start increasing the current emergency low policy rate although it will depend heavily on the data flow – particularly for wages and inflation – and the risk is that any action by the RBA will be delayed” Mr Oster said. The NAB said business conditions (in trend terms) are equal to or above their historical average in all states – highest in Tasmania (+25 index points), followed by Victoria (+20), Queensland (+19), NSW (+17). Conditions are more moderate in SA (+11 in trend terms) and WA (+9).
Confidence is highest in trend terms in WA and Tasmania (+15 index points) followed by SA (+12) and is at above average levels in the other states, although only marginally so in Victoria, the state with the lowest business confidence (+5).
On the sensitive issue of inflation and costs, the survey showed that final product price inflation "remains muted and retail prices declined.”
"However, purchase cost growth has been moving higher since late 2016 providing a tentative sign of inflationary pressure (see Themes of the Month on page 2). Labour cost (wage bill) growth moderated after rising the previous month.”
