Business conditions ‘unwavering’, says NAB

Business activity appears to be continuing its recovery, but there is still some uncertainty within the marketplace, according to NAB.

NAB’s Monthly Business Survey for May 2016 found business conditions remain at a “very elevated level”, unchanged at +10 index points for that month, which is well above the long-run average of +5.

NAB chief economist Alan Oster said the survey suggests further improvement for the non-mining sectors of the economy going into the second quarter of the year.

The survey showed that most industries recorded an improvement in business conditions for May, due to a notable uptick in sales and profitability which offset a moderation in employment demand.

“Service industries continue to lead the way, which now includes distributional services such as retail, but mining and construction remain quite weak, which is partly a reflection of the ongoing downturn in spending on resource projects,” Mr Oster said.

The survey indicated that firms are reporting lower levels of confidence despite elevated business conditions. NAB’s business confidence index eased by 2 points to +3 index points in May, pushing the index further below its long-run average.

“The RBA’s cut to interest rates did not help lift business confidence as we had hoped, even as sales activity continues to improve,” Mr Oster said.

“Uncertainty around the upcoming election might be a factor here, but mixed results across industries suggest that other factors are at play."

The survey said that with business activity indicators resilient, the Reserve Bank is likely to concentrate its attention on the inflation outlook.

Without a very weak Consumer Price Index result for the second quarter, these positive activity trends are “likely to keep the RBA [cash rate] on hold”, it said.

NAB said that overall, the survey results provide confidence in the bank's near-term outlook for the economy, which sees the non-mining recovery remaining on track.

[Related: Business conditions recover in February]

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Francesca Krakue

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