National Australia Bank's (NAB) business conditions rose to a high of +21 index points in October, up +7 points from September and the highest level since the monthly series began in 1997. Meanwhile, business confidence was not quite as lofty (at +8 index points), but still above its long-term average.
According to Alan Oster, NAB Group Chief Economist “this is an extremely strong result and of itself would suggest a better than expected performance for the economy. However, it is unclear just how long conditions can remain at these record levels given that the result was driven by a surprise jump in manufacturing, while some of the leading indicators such as forward orders – which have been giving a more accurate read on the strength of the economy – have actually softened a little in recent months. Less upbeat readings on business confidence may also be telling, with firms previously indicating that uncertainty around the outlook for their business is holding confidence back. That said, even before the spike in October, trend business conditions have consistently held up well above average levels in the past two years.”
- Leading indicators suggest the possibility of some pull-back in coming months.
- Forward orders eased slightly.
- The strength in business conditions is quite broad-based across industries and while retail is lagging well behind, it did see an improvement in the month.
- Stronger trading conditions and profitability drove the spike in business conditions this month, but NAB’s indicator of employment conditions is still solid – pointing to adequate jobs growth to further lower the unemployment rate.
- The Survey’s measure of wage pressures eased back.
- Overall, results from the Survey indicate that the business sector in Australia is very strong at present, which is having positive spill-overs into the labor market and (to some extent) investment.
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