AUD: BS Shows Significant Improvement in Business Conditions and Confidence - NAB

AUD: BS Shows Significant Improvement in Business Conditions and Confidence - NAB

Research Team at NAB, notes that the Australia’s NAB Business Survey revealed a significant improvement in both business conditions and confidence, suggesting the domestic business environment not only remains favourable but appears to be strengthening further.

Key Quotes

“In March, business conditions jumped to +12 points, its equal highest value since early 2008, reflecting above-average conditions in most industries. Service industries remain the best performers, although construction also closed the gap in March, manufacturing is looking more upbeat, and transport appears to be responding positively to lower fuel prices – in contrast, mining conditions remain extremely weak and retail was disappointing. All three components of conditions (trading, profits and employment) improved during the month, with the employment index particularly encouraging (the highest read since mid-2011), and indicative of on going labour market strength.

Capacity utilisation increased notably this month (and is now comfortably above long run averages), pointing to further improvement in the underlying health of the economy. This was in conjunction with a jump in business confidence (back to long-run average levels), helping provide some reassurance that the strength in business conditions can be sustained.

However, less encouragingly, forward orders dipped back into marginal negative territory – mainly due to lower mining, construction and retail orders. The capital expenditure index also softened (although remained positive) – mainly mining related. Across industries, positive business confidence is broad based, with only the mining sector reporting negative confidence.

The very strong outcome in this month’s NAB Business Survey provides strong evidence that the non-mining recovery has not been derailed by the financial market volatility and escalation in global economic concerns earlier in the year. While the service sector is still a major driver of the recovery, this survey suggests that the improvements may be becoming more broad-based across the economy – particularly in construction and manufacturing.

This is an especially good result in the context of a downbeat global economic outlook. Low interest rates and a more competitive currency (even given recent strength) are expected to remain key drivers domestically. Consequently, our outlook for the economy remains unchanged – and with the non-mining recovery expected to progress further, monetary policy is likely to remain on hold for an extended period. However, recent statements from the RBA reinforced the point that if the non mining sector were to show any signs of weakening, lower inflation and AUD strength has increased the RBA’s willingness to cut rates.”

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