Australia: Positive business confidence, but conditions uneven - Westpac

Andrew Hanlan, Senior Economist at Westpac, notes that the NAB business survey for September was positive overall, but conditions are uneven, which is concerning for the outlook.

Key Quotes

“Business conditions were unchanged at +14 and business confidence rebounded partially, up 2pts to +7. The survey was conducted from September 22 to 28. • The September update repeated familiar themes.”

“Overall business conditions are elevated, centred on a strengthening in the construction sector, with positive spillover effects to other industries, including manufacturing, transport, and wholesale.”

“However, the economic expansion is uneven, with weakness in the consumer sectors, particularly retail, evidence that the household sector remains under pressure. Notably, debt levels are high; wages growth is weak (with a lack of passthrough from stronger national income associated with high commodity prices); energy costs are rising; and more recently, lending conditions have tightened, seeing a cooling of the established housing market.”

“Jobs growth has been strong, in part a correction to excessive caution in 2016 around the Federal election, and the survey continues to point to further near-term strength.”

“As to the detail, the business conditions index was unchanged at +14, a well above average reading. Profitability rose 2pts to +17, trading conditions rose 1pt to +19, while employment conditions are still positive, albeit down 3pts to +7, fully reversing the gain in August.”

“Business confidence rose 2pts to +7, partially reversing the 6pt decline in August, to be a little above average. Confidence trails business conditions possibly constrained by global political tensions and possibly due to concerns around the prospects for the Australian economy to achieve sustained strong growth post the GFC.”

“The elevated level of the business conditions index is overstating actual conditions across the broader economy, as it has tended to do since the GFC. In part this bias is due to the exiting of firms from some sectors, such as the auto industry.”

“Directionally, economic conditions have improved in 2017, following the 2016 slowdown associated with the Federal election, against the backdrop of stronger world growth.”

“Domestically there has been a turnaround in the construction sector, reflecting: a diminished drag from the mining investment wind-down; a rebound in commercial building; an upswing in public investment; and home building activity remaining elevated, ahead of a downturn in 2018.”

“Retail conditions weakened in the September quarter to a reported -5, more than reversing the June quarter jump to +6 from -2 in March. Also concerning, conditions in the recreational & personal sector reportedly moderated in the month of September, to +13 from +18.”