Business conditions and confidence rose strongly in November and are now back above pre-pandemic levels according to the National Australia Bank’s latest monthly business survey.
The NAB says the results of its survey continue to suggest that a rapid rebound in the economy is happening as restrictions are eased and state borders opened up.
While renewed optimism in Victoria drove the improvement in confidence, Victoria was one of only two states to report a deterioration in conditions.
But the NAB reckons that fall is temporary and “we expect conditions to improve as the impact of its recent severe lockdown wears off.”
Business confidence rose 9pts to +12 index points in November, while business conditions rose 7pts to +9 index points. By sub-component, trading and profitability drove the gains in conditions, both up 10pts in the month. The employment index continues to lag the improvement in the activity measures, recording an unchanged -5 index points in the month.
NAB Group Chief Economist Alan Oster said “in aggregate the business survey saw another large gain in November.
Encouragingly, business confidence saw another large rise, driven by an improvement in Victoria. Conditions also saw gains and, importantly, this was evident across most states”.
“However, the employment index did not see a further improvement and remains in negative territory. So, while activity is picking up as the economy reopens, businesses are yet to move back into hiring mode.
“This is not completely surprising with the labour market often lagging developments in activity – so we will keep closely watching this measure.” said Mr Oster.
The NAB pointed out that overall both confidence and conditions “are now above average, and stronger than the period right before the pandemic – albeit this partly reflects some “snapback” following the containment of the virus.”
“Encouragingly, other lead indicators improved in the month: capacity utilisation saw a large gain and forward orders turned positive, the latter suggesting that the pipeline of work has begun to build. That said, there is some way to go before a full recovery is reached.
“Capacity utilisation remains around 1.4ppt below its long-run average, while the capex and employment indexes remain in negative territory.
Even with the significant improvement in trading conditions and profitability, businesses will likely to need to see a sustained improvement in forward orders and a complete recovery in capacity utilisation before renewed hiring and investment plans are put in place.
“Capacity utilisation continued to recover with another solid gain. However, it also suggests that despite a large rebound over the last 6 months, we are not yet fully recovered.” said Mr Oster.
“What is promising, is that the measure suggests that there will be another large rise in activity in the December quarter – a nice follow up to the solid rebound we saw in the Q3 national accounts last week” said Mr Oster.
