On the eve of the tonight’s delayed 2020-21 federal budget and a key Reserve Bank monetary policy board meeting this morning, the National Australia Bank’s monthly survey of Australian business conditions and confidence has shown another improvement as the economy staggers back towards pre-COVID-levels.
But the progress is fitful and of course, Victoria remains the lead in the saddlebags as the impact of its easing lockdowns and other restrictions continue to impact overall demand, retailing, and other key sectors (but not mining).
The NAB released the survey early, ahead of the budget and it said yesterday that “Overall, the survey saw a modest improvement in September” but looking forward the outlook isn’t so robust.
“Conditions are around the levels seen in early 2020 but remain well below average,” the bank said.
Business conditions rose 6pts in August to 0 index points. “The improvement was driven by a rise in all three subcomponents. Trading (+6 index points) and profitability (+2 index points) are now in positive territory after improving over recent months, while the employment index remains negative even after rising a solid 8pts,” the NAB said yesterday.
The improvement in conditions was driven by a rise in all three subcomponents – trading and profitability are in positive territory, likely reflecting improving activity as the economy opens up.
The employment index remains negative, suggesting that business remains cautious and not yet ready to restore previous employment levels. The impact of the virus remains evident in Vic where conditions are notably weaker than the other states.
“On the other hand, conditions are now above average in WA, SA, and Qld pointing to an ongoing recovery in those states. NSW remains negative but also improved in the month.
“Confidence saw further improvement in the month and is well above the March trough, but remains in negative territory. While confidence and conditions have rebounded relatively quickly, forward-looking indicators remain soft after only seeing marginal gains in recent months.
“Business confidence rose by 4pts to -4 index points in the month. Confidence rose in most industries in the month, though the gains in retail and recreational & personal services were marginal and finance, business & property services was unchanged in the month.
“Confidence is now neutral or positive in all industries except retail and the services industries – personal & recreation and finance, business & property services,“ the NAB said.
Alan Oster the NAB’s Group Chief Economist said in yesterday’s statement that “after some volatility in the last 2 months conditions are around the level seen pre-COVID. That said, they only lie at the threshold of improving/deteriorating and are well below average.
“Trading conditions and profitability are back in positive territory, which likely reflects the ongoing opening of the economy and the support provided by policymakers. Employment continues to lag, however, likely reflecting the fact activity has not yet fully recovered and firms remain cautious”.
The improvement in retailing though is not expected to last, according to the NAB. ” these businesses do not expect this to continue. While retail currently sees the best conditions, it is likely that, as government support fades and households adjust to a weaker labour market, retail pulls back,” the bank said on Monday.
