Business conditions steady while confidence drops

Consistent above-average business conditions are helping reassure that economic recovery in the non-mining sector is gaining further traction, according to NAB.

The bank’s Monthly Business Survey found that business conditions remained unchanged in October at +9 index points – well above the long-run average of +5 and the post GFC average of around +2.

NAB said consistently above-average outcomes since March are helping to provide reassurance that the non-mining economic recovery is gaining further traction, although there continues to be “significant dispersion” in business conditions across industries.

“By component, the employment index sustained the gains recorded last month, which pushed the index back into positive territory. This outcome is more in line with the solid outcomes for other labour market partials,” the bank said.

“Both trading and profitability remain at very elevated levels, although profitability eased modestly in the month, while trading conditions improved slightly.”

Despite solid business conditions, NAB said business confidence has been “stubbornly sluggish” over the last six months, dropping back three index points to +2 in October.

“While the government’s leadership resolution appeared to have notable (albeit temporary) effect, it is difficult to disentangle this from concerns about growth in emerging markets and financial market volatility, which is likely to have influenced confidence with varying degrees of intensity in recent months,” it said.

“The recent drop in forward orders may also have weighed on confidence this month.”

NAB noted that monetary policy is forecast to remain on hold for an extended period, with first cash rate hike expected to occur in mid-2017.

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