Australian business conditions hits a fresh multi-year peak

Australian business conditions have hit a fresh multi-year peak in the most recent National Australia Bank business confidence survey for July. Employment conditions still point to solid hiring levels in the coming months.

It is perceived as a significant factor given its implications for wage growth, inflation, household spending and the outlook for domestic interest rates. It all looked promising for the nation’s economy in the second half of 2017.

The survey’s measure on business conditions climbed 1 point to +15, the highest level so far since 2008. Underlining just how solid conditions are at present, the index sits three times higher compared to the series’ long-run average of +5.

Chief economist at the National Australia Bank (NAB) Alan Oster said the boost was driven by stronger profitability levels. “Profitability was the only component of business conditions to improve in the month, while employment conditions were unchanged and trading/sales moderated slightly, but remains at very elevated levels,” Business Insider quotes him as saying.

The survey’s confidence measure also jumped 4 points to +12. It was close to the highest level since 2010.

NAB said business confidence has been chasing business conditions higher. It added that business confidence has likely seen some further support from an improving global environment.

Confidence levels look good in many industries including mining and retail. However, some notable risks remain.

Renewed divergence across industries

According to Oster, conditions varied notably across individual sectors. “There was a renewed divergence across industries in the month as the improvement was driven primarily by professional services, while retail and wholesale softened considerably, again highlighting competitive pressures in retail and the difficulties facing households,” he explained.

NAB further stated that performance was more uniform with conditions in all locations remaining in positive territory in trend terms except Western Australia. The region has seen a notable improvement in the past year or so, but it is still an underperformer with trend conditions at only 0 index points.

New South Wales has once again secured the top spot for the mainland states. Queensland and South Australia are sitting on +15 index points and Victoria on +14.

Oster said the result of the employment subindex, which held steady at +7, made him a more positive about the near-term outlook for the labour market. He maintained that employment conditions were steady in the month at levels that point towards a healthy rate of job creation in the Australian economy.

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