Australia: Business conditions partially rebound and are well above average - NAB

According to the NAB’s latest Quarterly Business Survey, Australia’s leading indicators mostly improved in Q1 2017, which has been reflected in better outcomes in terms of investment and hiring intentions going forward.

Key Quotes

“Both near and longer-term employment expectations recorded solid improvements and a greater proportion of firms a reporting difficulties finding suitable labour. Meanwhile, capex plans for the next 12 months hit their highest level since mid-2011, consistent with a rebound in capacity utilisation rates this quarter. The mining industry is showing more signs of turning a corner with a strong bounce in mining conditions and elevated confidence levels. Meanwhile, retail trends are still a concern despite showing some improvement in the quarter. The Survey’s read on inflation remains very subdued and points to an absence of wage pressures.”

“Business conditions (an average of trading conditions/sales, profitability and employment) improved in the March quarter, albeit not to the extent seen in the monthly Survey, driven by an increase in profitability and employment. The conditions index rose 2 points, to +8 index points, which is well above the long-run average.”

“Leading indicators were more encouraging across the board in the March quarter, with firms telling us that the near-term outlook is looking even more upbeat. Their expectations for business conditions in both the near and longer term improved noticeably in the quarter, while a similar trend could be seen in both their hiring and capital expenditure intentions.”

“Most of the other leading indicators from the Survey were more positive as well.”

“Employment expectations in both the near and medium-term have hit multi-year highs and firms are also indicating that it has become harder to find suitable labour. That all points to a tighter labour market than the ABS unemployment rate is currently suggesting. Similarly, capex plans (next 12 months) reached their highest level since 2011.”

“Business conditions were also positive for all industries other than retail, with service industries still performing best. Mining conditions are clearly seeing support from higher commodity prices, pushing back into positive territory for the first time since 2012.”

“Despite the clear improvement in activity indicators, the Survey still points to very subdued inflationary pressures – working to keep wage pressures contained. According to Mr Oster, “these results suggest solid rates of business activity in the near term, although do not include likely disruptions from Cyclone Debbie, while the leading indicators point to even better outcomes in the next 12 months. However, we continue to anticipate some significant headwinds from 2018 as LNG exports and the housing construction cycle peak. That, combined with the lack of inflationary pressures in the Survey suggests the RBA will remain on the sidelines for an extended period”.”