Business conditions ‘rock solid’ but challenges remain ahead: NAB

The survey found that business conditions remained very strong in September, with the business conditions index holding steady at +14 index points — well above the long-run average (+5).

“Business conditions at these levels tell us that the business sector in Australia is doing very well,” NAB chief economist Alan Oster said. 

"We have certainly seen that reflected to some degree in areas like corporate profits and jobs growth, but other aspects of the economy, such as business investment, have been somewhat disappointing in comparison. In that context, it will be important to keep an eye on the recent softer trend in business confidence.

“The construction industry is currently leading the way with the highest business conditions, although most industries are following close behind. Retail continues to be the main exception, with conditions in negative territory and apparently trending lower.”

Mr Oster noted that NAB’s latest survey saw the demand for labour strengthen and more hints of a slight pick-up in investment intentions.

“With the labour market poised to see further improvement going into 2018," the chief economist added, "the economy now seems better equipped to deal with the challenges it faces, which should leave the RBA with scope to commence a shift away from emergency stimulus settings by H2 2018.”

However, Mr Oster warned that elevated underemployment, an elevated Aussie dollar, household debt and peaks in LNG exports and housing construction are all “potential hurdles” that will ensure that the RBA proceeds with caution.

[Related: NAB launches new mortgage business]