Last week Australia was celebrating the fact that it had gone 25 years without experiencing a recession, a testament to its resilience given the trials and tribulations seen over that period.
However, despite that unbelievable track record — second only to the Netherlands for a developed economy in modern times not experiencing a recession — there were signs of trouble about where the economy was heading.
According to data released by the Ai Group, activity levels across Australia’s services, construction and manufacturing sectors contracted sharply in August, an anomaly of sorts despite each survey being renowned for its month to month volatility.
While the weakness in retail sales is a worry, particularly given weak household consumption figures in the latest Q2 GDP report, there has been some good news delivered on the outlook for Australia’s corporate sector, helping to alleviate some concerns generated by the Ai Group reports.
Yes, you can be at ease, Australia. Neither activity levels nor confidence collapsed in August, at least according to the latest Australian business confidence survey released by the National Australia Bank (NAB) earlier this morning.
Business confidence actually improved with the surveys confidence measure rising 2 points to +6, leaving it in line with the series long-run average.
Though weaker than what had been seen in July, the separate conditions index held above its long-run average of +5, falling 2 points to +7.
In other words, while business conditions and confidence didn’t blow the lights out in August, they were hardly weak.
That view was shared by Alan Oster, chief economist at the NAB, who suggested that the “survey is still showing solid performance in the non-mining economy, although some of the previous momentum has been lost”.
“The results from this month’s survey remain broadly consistent with our prior view of the economy and the near-term outlook,” he said. “It points to a patchy, but sustained, improvement in the non-mining economy, with the major services sectors and construction leading the way.”
The table below from the NAB breaks down the internal movements within the August survey.
Of note, measures of profitability and trading continued to weaken from very high levels seen earlier this year. While they are softer — indicating that there’s been a loss of momentum in activity levels in recent months — that was partially counteracted by still-robust readings on the outlook for employment and activity levels moving forward.
“Both trading conditions and profitability have continued to ease from their previously very high levels. In contrast, the employment component has managed to hold onto the gains seen in recent months, although it remains the weakest of the three components,” said Oster.
“The survey’s leading indicators are pointing to a solid near-term outlook. Forward orders were steady and have been positive for most of the past year,” he added.
Given the trends in the August survey, Oster suggests that it “still gives us confident in the near-term outlook for the economy, even though things may have cooled a bit”.
However, beyond the short-term, he believes that uncertainty is building.
“Beyond the near-term the outlook becomes more uncertain, as the effects of previous AUD depreciation, higher commodity exports and the housing construction cycle begin to wane,” he warned. “All of these factors are expected to come to a head around 2018, and the economy will likely require additional policy support from the RBA ahead of this to firm up growth and stabilise the unemployment rate.”
In particular, Oster believes that “relatively subdued conditions in wholesale and retail warrant close monitoring, particularly in light of disappointing consumption growth in the Q2 National Accounts”.
The NAB currently expect two more 25 basis point rate cuts from the RBA in 2017, leaving the cash rate at a record-low level of just 1%.
Helping to bolster that view, at least from an inflationary perspective, retail prices tracked in the survey grew at a quarterly rate of just 0.1%, well below the 0.8% pace seen in July.
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