Results from the March National Australia Bank (NAB) Monthly Business Survey point to an overall healthy economy that is gaining momentum, at least in the near-term.
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Business conditions hit their highest level since the GFC in March, although Cyclone Debbie may be behind the smaller representation of Northern Queensland firms in the March sample, potentially overstating the magnitude of the improvement in conditions.
Meanwhile, business confidence outcomes have been perplexing, diverging somewhat from business conditions of late – albeit staying at solid levels – while weak Survey outcomes in retail are still a point of concern.
Business conditions are consistent with NAB’s outlook for economic growth to accelerate in H2 2017, following some likely disruption in Q2 from Cyclone Debbie.
However, the longer-term outlook remains less compelling, particularly as major growth drivers (LNG exports, commodity prices and housing construction) begin to fade.
Meanwhile, the RBA has emphasised its financial stability concerns, which are expected to keep them on hold for the foreseeable future.
Business conditions more than recovered from last month’s drop, re-establishing a clear upward trend for the series.
The business conditions index jumped 5 points, to +14 index points, which is well above the long-run average (+5) and its highest level since the Global Financial Crisis.
Despite the clear strength in conditions, business confidence has been relatively lacklustre, remaining below the peaks of recent years (falling 1, to +6 index points).
Most industries are showing solid or improving business conditions, although in March the improvement was primarily driven by the major services sectors and wholesale.
Within business conditions, trading conditions (sales) drove most of the improvement in the months, although profitability also saw a more modest increase.
Employment conditions were unchanged in the month, although holding at a level that suggests a healthier labour market than official statistics.
Leading indicators were reasonably solid in March, with the capacity utilisation rate lifting, consistent with a solid read on capital expenditure, while forward orders also rose in the month. ■