Underlying economy healthy despite volatile business conditions: NAB

While the authors of NAB’s March Monthly Business Survey said business conditions had been reasonably volatile in recent months, they did note that the figures showed the underlying trends were encouraging.

Specifically, NAB said the findings indicated strength in the service sector and growth in the mining industry in Western Australia – driven, in large part, by rising commodity prices.

However, it also suggested that the instance of Cyclone Debbie could explain the smaller representation of northern Queensland companies in the March sample, noting this could potentially overstate “the magnitude of the improvement in conditions".

NAB also revealed that business confidence outcomes had been puzzling and diverged to some extent from recent business conditions, while remaining at solid levels. It warned that weak survey results in the retail sector in particular were still a cause for concern.

The data found that business conditions more than made up for last month’s loss, indicating a clear upward trend for the series.

Highest level since GFC

Indeed, the business conditions index jumped 5 points to +14 index points, which NAB classed as well above the long-term average of +5, marking its highest level since the global financial crisis.

However, NAB highlighted that despite the clear strength in conditions, business confidence has been relatively lacklustre, lingering below the highs of recent years and dropping by 1 to +6 index points.

“The bounce in business conditions this month came as a bit of a surprise,” said NAB chief economist Alan Oster.

“The strength of the major service industries is still a key theme in the survey, but we are clearly seeing other industries catching up.”

“The mining industry has been particularly impressive, having lagged well behind in recent years to now be one of the better performers in terms of business conditions, off the back of higher commodity prices and an improved global demand outlook,” Mr Oster added.

For the longer-term outlook, the survey indicated a far less upbeat trend, particularly as major growth drivers such as LNG exports, commodity prices and housing construction are expected to start slipping.

“Meanwhile, the RBA has emphasised its financial stability concerns, which are expected to keep them on hold for the foreseeable future,” said NAB.

In terms of the nation’s employment outlook, the March survey results showed that employment conditions remained positive during the month – unchanged from the previous month and having steadily improved over recent years.

NAB said current levels were in line with annual growth in employment of around 225,000 per annum in the year to August 2017 or 19,000 jobs per month over the next 6 months – a rate above the current trend employment growth of 11,600.

[Related: Consumer confidence falls for third week straight]