Boom times defy the gloom as NAB survey hails business confidence

The Australian, August 8, 2017

Business is booming, based on the latest National Australia Bank survey, which says conditions are better than at any time since early 2008.

And after three years of steady improvement in profits, sales and employment, companies are increasingly confident about the outlook.

“Business confidence has gradually been chasing business conditions higher for some time,” said NAB chief economist Alan Oster, “and has likely seen some additional support this year from an improving global environment as well, although there are still some notable risks.”

NAB’s July survey shows the number of firms saying conditions overall are improving outnumbers those saying they are becoming more difficult by 15 percentage points. That is three times the long-term average margin.

The net margin reporting improved confidence about the outlook jumped from eight to 12 percentage points in July, which NAB says is double the long-run average. The strongest sectors are finance and personal services, where the net positive margin is above 15 percentage points. Wholesale, transport and utilities are close to that level.

Retail is the biggest point of concern, dropping back below zero in July, despite several months of strong sales. Mr Oster said the dip reflected competitive pressures in retail and difficult conditions facing households.

“We remain apprehensive about how the disconnect between the business and consumer sectors will be resolved — especially in light of sluggish retail conditions in July,” he said.

This month’s Westpac/Melbourne Institute consumer sentiment index will be released today. It has persistently shown most consumers are pessimistic.

UBS economist George Tharenou said there was a more significant “disconnect” between the NAB survey and the latest national accounts, which showed the economy at its weakest level since the global financial crisis, forcing the Reserve Bank to cut its growth forecasts.

“Business surveys are one of the reasons why the Reserve Bank now sees an even more bullish 3.25 per cent plus GDP outlook in coming years, despite the recently higher Australian dollar and a likely looming housing correction,” he said.

A similar gap between “soft data” of business surveys and “hard data” of GDP reports is evident in other economies. However, the NAB ­survey highlighted positive responses on employment. A net margin of 7 percentage points reported increased hiring. “The persistent strength in employment conditions has made us a little more optimistic about the near-term outlook for the labour market.”

The NAB measure of capacity utilisation, seen by the Reserve Bank as the best guide to spare capacity in the economy, was steady at 81.9 per cent. It is still higher than at any time since the GFC, and consistent with jobs growth and rising business investment.