Business conditions best since GFC: NAB

The Australian, April 11, 2017:

Australian businesses have reported the strongest trading conditions since the global financial crisis, but sentiment is failing to come along for the ride.

The latest NAB Monthly Business Survey reveals business conditions rose 5 points to 14 points in March, while the reading on sentiment eased 1 point to a modest reading of +6.

However, business confidence weakened to +6, down from +7 in February.

“The bounce in business conditions this month came as a bit of a surprise, especially the big improvement in Queensland in light of the likely disruptions from Cyclone Debbie in late March,” NAB chief economist Alan Oster said.

“One possibility is that ‘Debbie’ is having the unexpected effect of overstating conditions in March given that the cyclone coincided with a lower response rate from firms in Northern Queensland.

“Even so, conditions have improved almost across the board to levels that suggest a strong economy in the near term.”

The survey showed improvement across the country, including in Western Australia, with confidence swelling the worst may be behind the state after a couple of years marred by the mining investment downturn.

There was also broad improvement across industries, with a noted pick-up in mining on the back of a recent recovery in commodity prices.

The primary exception came from the retail space, with the sector struggling through the crucial festive season and seemingly failing to gain any momentum in the months since.

“The apparent weakness in retail is driving our relatively downbeat outlook for consumption,” Mr Oster said.

Within the reading on conditions, sales showed as the major driver of the advance. Employment conditions remained stable, but are seen at levels that point to a stronger labour market than the one revealed in the official ABS numbers.

Leading indicators also highlighted strength as the capacity utilisation rate climbed and forward orders rose.

“The results are encouraging in terms of the near-term economic outlook,” Mr Oster added.

“However, there is still cause to be cautious about the longer-term outlook, particularly as other growth drivers, including LNG exports, commodity prices and housing construction, begin to fade.”