NAB business conditions drop, tentative signs of wage growth

The National Australia Bank's (NAB) business confidence index fell 9 points to +12 index points in November but is still well above the long-run average of +5. Meanwhile, business confidence is retreated from +9 (last month) to +6 in November. There has been a notable downward trend in the series since around the middle of the year.

According to Alan Oster, NAB Group Chief Economist, “we expected to see last month’s spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders. But even after this decline, business conditions
are still very much above the long-run average and suggest to us that Australian business are quite happy with how things are going. That said, we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment.
Meanwhile, forward orders – which have had a close relationship with non-mining activity – were stronger this month".

Other key quotes

“The construction industry has been a clear standout in the Survey and was the only industry where business conditions did not fall in November.

"NAB’s employment index has been reassuringly steady over recent months, holding at levels that suggest further job gains and lower employment, which may help to spur a turnaround in wages growth and therefore consumer spending." 

"Indeed, we saw some tentative signs of higher wages in the Survey, although that does appear to be weighing on the confidence of some firms as well.”

"We remain cautiously optimistic that Australia will see temporarily above-trend economic growth in coming quarters, and while there are still some significant challenges to the outlook, support from business investment and infrastructure construction should be enough to prompt the RBA to consider a gradual removal of emergency policy stimulus."

"We maintain our expectation for the first RBA hike to come in the second half of next year, but only if the labour market and wages improve further”