Last month’s surprise spike in business conditions was more than unwound in November, according to the National Australia Bank’s monthly survey, with business confidence also retracing.
But the big question for the NAB and economists and investors is whether these falls last month were a reversion to the previous trend, or a sign of growing fatigue among businesses.
In fact business conditions more than gave back the sharp gains from last month, with the conditions index falling 9 points to +12 index points – which is still well above the long-run average (of +5).
And the business confidence dropped from plus 9 last month to the long time average of plus 6, although NAB economists say this measure has shown a notable downward trend in the since mid year.
NAB Group Chief Economist, Alan Oster said in a commentary with yesterday’s release that “we expected to see last month’s spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders.
"But even after this decline, business conditions are still very much above the long-run average and suggest to us that Australian business are quite happy with how things are going.
“That said, we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment.
"Meanwhile, forward orders – which have had a close relationship with non-mining activity – were stronger this month"
The NAB said that overall the construction industry is looking particularly good, but the retail sector is still lagging behind (and has been all year and especially in the September quarter).
Most states are seeing very solid business conditions, although WA is only moderately positive (but not weak and negative as it was earlier this year).
The Survey’s employment index held steady at previous levels, pointing to adequate jobs growth that should further lower the unemployment rate.
Thursday’s November jobs report will confirm the strength of the labour market heading into 2018.
Wage costs picked-up this month, coinciding with reports from some firms in the survey that wage costs are now impacting confidence.
The NAB said it would be watching closely in coming months the trend that emerged from last week’s National Accounts for September showing the growing divide between the relatively upbeat business sector and seemingly restrained households.
The NAB said it survey suggests “ hat trend may continue going into Q4, and we are continuing to watch the softer trends in confidence and the retail sector, as both can have significant implications for the outlook.”
“Overall, there was nothing in this month’s Survey that would prompt us to alter our view of the Australian economy,” Mr Oster said yesterday.
“ We remain cautiously optimistic that Australia will see temporarily above trend economic growth in coming quarters, and while there are still some significant challenges to the outlook, support from business investment and infrastructure construction should be enough to prompt the RBA to consider a gradual removal of emergency policy stimulus.
“We maintain our expectation for the first RBA hike to come in the second half of next year, but only if the labour market and wages improve further” said Mr Oster. The NAB issues its updated forecast for 2018 later on Wednesday.
