Australian business conditions hit record highs

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  • The NAB business survey hit the highest level on record in February, although share market volatility weighed on confidence.
  • The gains were driven by further increases in trading and profitability.
  • NAB says the result is consistent with a positive growth outlook which may see the RBA raise rates towards the end of the year.

Business conditions in Australia just hit yet another record high, reinforcing the prevailing view in recent months that Aussie businesses have never had it better.

According to the NAB Business Survey for February, domestic business conditions rose by 3 points to a reading of +21 — the highest measure since the monthly survey was introduced in 1997.

Source: NAB

The gains were driven by further strength in trading and profitability, which both rose by 2 points from already-elevated levels in January.

While business conditions continue to climb, the reading for business confidence dipped by 2 points to a reading of +9 — perhaps reflecting the market volatility seen in early February.

But it was unquestionably another strong report for Australia’s business sector, with broad-based strength across most industries.

Even the struggling retail sector recorded its best reading in eight months, although NAB cautioned that seasonal factors may have contributed to the result.

This table provides a summary of all the key indicators:

Source: NAB

Oster said the data was consistent with the bank’s view that the RBA may look to raise rates at the end of this year.

“After last week’s release of below expectation GDP growth data, the strength in business conditions and leading indicators makes us more confident that Australia will see stronger economic growth in coming quarters on the back of LNG exports, and business and government investment,” Oster said.

“This will sustain strong jobs growth, reduce unemployment, and put gradual upwards pressure on private sector wages.”

Among the key themes in this month’s report, leading indicators suggest there may be further improvement to come as forward orders jumped by 8 points to a reading of +11.

NAB chief economist Alan Oster said that such a rise points to an improved outlook for the non-mining sector of the economy — an area the RBA has pointed to as a key driver of economic growth.

“While data can be volatile from month-to-month, forward orders have been on a rising trend for several years now,” said NAB chief economist Alan Oster.

“Similarly, capacity utilisation is trending higher which is a positive for both future investment and employment” Mr Oster said.

Source: NAB

The sub-index for labour costs also reported a solid rise, increasing from 0.9 to 1.2.

The increase ties in with Australia’s record streak of jobs creation. However, NAB said the rise in labour costs was “likely reflecting the jump in employment, rather than wage growth”.

“If the surge in the employment index is maintained you would expect to see jobs growth of around 27k per month,” Oster said.

“While this is below the average monthly growth rate in jobs recorded by the ABS over the last 12 months, the bottom line is that strong jobs growth will not be ending any time soon —
which is good news for getting the unemployment rate down.”

Historically, the NAB Survey employment sub-index has tended to lead the ABS data by around six months:

Source: NAB

By industry, conditions were strongest in trend terms across construction, mining, finance, and property & business services.

Although the sub-index for retail picked up in February, NAB said seasonal volatility may have been a factor. Furthermore, the sub-index for personal & recretional services has been trending down over the last four months.

“While they remain above average, it is a trend worth watching to see if softness in consumer spending is broadening beyond retail,” NAB said.

Business conditions also remain strong across the states, led by Queensland and Tasmania which both recorded a reading of above 20. The states with the highest readings for confidence were WA (+14) and South Australia (+12).

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