Australia business conditions index hit a record high in February - NAB survey

The National Australia Bank's business conditions index moved 3pts higher to a new record high of +21 index points in February, beating the estimated drop to +16 index points from the previous month's figure of +19 index points. 

“The record level for the NAB Monthly Business Survey business conditions index indicates that business activity in Australia is robust. Moreover, the strength in conditions is broad-based across industry groups", according to Alan Oster, NAB Group Chief Economist. 

Meanwhile, the business confidence index declined by 2pts to +9 index points largely due to turbulence seen in international financial markets in early February, according to Mr. Oster. That said, the confidence remains above average suggesting that the impact was relatively limited. 

Key quotes

While data can be volatile from month-to-month, forward orders have been on a rising trend for several years now signaling an improved outlook for the non-mining economy. Similarly, capacity utilization is trending higher which is a positive for both future investment and employment.

If the surge in the employment index is maintained you would expect to see jobs growth of around 27k per month. While this is below the average monthly growth rate in jobs recorded by the ABS over the last twelve months, the bottom line is that strong jobs growth will not be ending anytime soon, which is good news for getting the unemployment rate down.

The gap between the best and the softest performing industries is at a relatively low level with even the underperforming retail sector recording its highest reading in eight months.

After last week’s release of below expectation GDP growth data, the strength in business conditions and leading indicators makes us more confident that Australia will see stronger economic growth in coming quarters on the back of LNG exports, and business and government investment. This will sustain strong jobs growth, reduce unemployment, and put gradual upward pressure on private sector wages.

We expect by late 2018 the RBA will feel relaxed enough about the domestic fundamentals to cautiously start withdrawing the stimulatory policy stance it is currently running. However, it will depend heavily on the data flow and the risk is that the RBA will delay rate rises until early 2019.