Australia: Business confidence lifts, conditions elevated - Westpac

Andrew Hanlan, Research Analyst at Westpac, explains that the NAB business survey paints a positive picture overall for the Australian economy as we begin 2018. That said, conditions are still uneven, with weakness in consumer sectors, he further adds.

Key Quotes

“In January, the business conditions index jumped 6pts to an elevated +19, well above the long-run average of +2.”

“The business conditions index has been volatile over the past four months, averaging +16, possibly due to changes in seasonal patterns. We would also caution that data is often more volatile in January, with most of the nation either on holidays or just returning from holidays.”

“Business confidence recovered further, lifting 2pts after a 3pts rise in December to be at +12, a reading above the long-run average of +5.”

“The improved global economic backdrop is boosting confidence. Domestically, both business and consumer confidence have lifted after a soft spot around Q3, which coincided with a cooling of the housing market as lending conditions tightened.”

“The January survey was conducted from January 24 to 31. Note that this is prior to the sharp sell-off on global share markets, which began in the US on February 2.”

“Private business surveys have identified key trends, around economic conditions, employment and business investment. Following are some points of interest.”

“Business conditions remain uneven. Construction, and associated sectors (eg manufacturing) continue to perform strongly, boosted by a lift in public works and commercial building activity, against the backdrop of stronger world growth. The mining sector ended the year on a positive note, benefitting from current elevated commodity prices. An emerging headwind is the easing of conditions in the housing sector following a strong upswing.”

“The consumer sectors continue to disappoint at a time of weak wages growth. For January, the survey reports that retail improved somewhat to a still soft +3, while recreation & personal on a three month average basis is at a 3½ year low.”

“The employment conditions index has eased over recent months. This suggests that official jobs data has overshot to the high side. The survey points to solid jobs growth, moderating from the current brisk pace.”

“The survey’s capex measure eased back in December and again in January. Even so, the 3 month moving average remains relatively elevated. The survey’s capex measure lifted in 2017, correctly foreshadowing the strengthening of business investment - consistent with improved profitability, some reduction in spare capacity and a more upbeat mood amongst businesses.”

“Business conditions are positive in each of the six states. Strength is evident across the eastern states of NSW and Victoria, as well as Qld. The mining state of WA trails, but conditions there have improved from the weakness evident during 2016, boosted by improved cash flows associated with higher commodity prices and with a greatly reduced drag from the winding down of the mining investment boom.”