More evidence that the stagnating Australian economy is here to stay for a while longer.
The National Australia Bank’s closely watched monthly survey of business conditions and confidence saw a sixth consecutive below-average performance in September.
The NAB said that while business conditions rose a point last month, confidence fell.
But like RBA Governor Dr Phil Lowe and his discovery of a “gentle turning point” in the past month, the NAB reckons there are hints the widespread sag in the economy has “slowed” thanks to an improvement in employment prospects (which is belied by the sharp fall in private-sector job openings in the three months to August).
“While both conditions and confidence remain below average levels +6 index points – the broad-based trend decline since mid-2018 appears to have slowed. In the month, profitability and trading conditions remained below average, contrasting with the employment index, which edged up and is now above average.
“This mirrors official data that show ongoing strong employment growth but subdued consumer spending,“ the NAB said.
NAB Chief Economist, Alan Oster said in yesterday’s release “The results of the September survey suggest more of the same for the business sector. Conditions edged up, and confidence was marginally lower, but both remain below their long-run average – well below the levels seen just over a year ago.
“This suggests that activity in the business sector has slowed and we fear the risk that this spreads to both investment and employment intentions”.
Despite the suggestion of a slight improvement retail remains a mess with wholesale (the goods distribution industries) not far behind.
This the NAB says is “a reflection of conditions in the household sector. Manufacturing and construction are also weak, reflecting the dynamics in the housing sector and possibly some impact from global trade turmoil.
“Forward indicators remain mixed, but overall suggest that conditions are likely to continue a below-average trend.
“Likewise, price indicators suggest inflationary pressure is likely to remain weak.
“Recent rate cuts, as well as the tax refunds, appear to have driven some improvement in the retail sector, but with conditions remaining deeply negative it is unlikely to have been enough support to see a material turnaround in the sector,” the NAB said.
Looking at the survey in some detail the NAB said that business conditions rose 1pt in September to +2 index points. This continues the below-average run of business conditions but suggests that the trend weakening since mid-2018 has slowed.
“In the month, the increase was driven by a 1pt rise in each of the trading (now +4 index points), profitability (now -2 index points) and employment (now +3 index points) sub-indexes. Both trading and profitability remain below average while employment is now just above its long-run average.
“Business confidence edged 1pt lower – now at 0 index points, the threshold between improving and deteriorating confidence in aggregate. It remains below its long-run average of +6 index points.”
Mr. Oster also pointed out that the “downturn in housing construction and this has some way to play out. The consumer is weak, with low-income growth and high debt levels having been a factor for some time.”
“Global uncertainty is heightened on the back of trade ructions – and the exchange rate has depreciated. More positively, public sector spending has been a support to the business sector with a large pipeline of work underway” said Mr. Oster.
“These factors have seen particular weakness in the ‘goods’ related part of the business survey with particular weakness in retail, wholesale, construction, and manufacturing. Services sectors have generally held up better, and mining, while volatile recently, is also still a positive” said Mr. Oster.
“Rate cuts will help but will lag and with a weak consumer and higher global uncertainty, we are unlikely to see a material improvement in the short-term,” said Mr. Oster.
