Australia: Business confidence and employment conditions heads north – NAB

Andrew Hanlan, Senior Economist at NAB, notes that the NAB business survey reported that business confidence moved sharply higher in April, narrowing the gap to business conditions.

Key Quotes

“In April, the conditions index rose 2pts to +14 (with March revised lower to +12 from +14). This is well above the longrun average (which is +1) and the highest reading since the start of 2008, prior to the GFC.”

“The survey adds to the evidence that, as expected, the Australian economy has emerged from the slowdown in 2016, which was associated with the July Federal election.”

“Improved business conditions reflect: a strengthening of global conditions; a reduced drag from the mining investment downturn; the income boost from the recent higher commodity prices; a lift in construction activity (in part due to the upswing in public investment); and more generally, support from low interest rates and the lower dollar.”

“As to the level of business conditions and what this implies for the national accounts, we note that in recent times the conditions index has tended to overstate domestic demand growth. Business investment has been sluggish post the GFC, a development that may not be fully captured in the private business surveys.”

“Business confidence jumped in April, up 7pts to +14, which is above the long-run average for this series of around +5. This is the highest reading in 7 years, since April 2010.”

“This extends the trend improvement in business confidence evident in 2017, against the backdrop of improved global conditions. It brings confidence more into line with business condition, potentially suggesting that earlier concerns around global risks may have diminished.”

“In April: trading conditions moderated from an elevated level, down 4pts to +17; profitability was steady at +14; and employment conditions strengthened, +2pts to +8.”

“Employment conditions have moved higher in 2017, with a sustained lift for four consecutive months. Potentially, the strengthening of business conditions and increased confidence may translate into stronger jobs outcomes, as reported in the official ABS data, which prior to March, surprised to the low side.”