Official release - NAB
Business conditions were unchanged at an above average +9 index points in October, again consistent with the theme of recovery in non-mining sectors of the economy. By component, employment conditions maintained the improvement recorded last month, while trading conditions improved modestly and profitability eased – although both of these remain at very elevated levels. Service sectors continue to report more favourable conditions than other industries, despite a pull-back in personal services during the month, while mining, manufacturing and wholesale were all negative. Capacity utilisation increased further this month, which bodes well for business investment and the labour market. But despite solid conditions, forward orders have weakened (turning negative in the month), raising the risk of a softening in activity in the very near term.
Business confidence remains somewhat fickle, despite persistent strength in business conditions. The confidence index eased back in the month, unwinding much of the gain following the Government’s leadership resolution and a paring-back of concerns about emerging markets. Nevertheless, confidence remained positive (at +2) – albeit still well below the long run average – and was unchanged in trend terms (+3). The deterioration was reasonably broad based, with only finance/ property/ business, manufacturing and mining improving (although mining remains negative).
The business survey still points to a reasonably resilient recovery in the non-mining sector, despite stubbornly sluggish business confidence in the past six months. Better business conditions are not being felt uniformly across the economy, as industries that are better positioned to benefit from lower interest rates (especially those closely tied to residential real estate) and the AUD remain the clear outperformers – personal and business services are the main standouts.
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