Australian business conditions remain 'rock solid'


Australian businesses are feeling good, with conditions still at elevated highs while confidence bounced back from a fall in August.

The NAB monthly business survey for September show that Australian business conditions are holding steady at a reading of +15, around three times their long run average.

Last month’s sharp dip in business confidence also reversed, climbing by 2 points to +7 after a steep fall in August when companies were concerned by increasing tensions with North Korea.

NAB’s chief economist Alan Oster said that although business confidence climbed back above its long-term average in September, geo-political factors may cause further volatility in that reading. Such flucuations may “pose a challenge to the outlook for hiring intentions and business investment”, Oster said.

Confidence levels may also have been weighed down by an additional quarterly survey in the prior month which asked businesses to specify areas of concern, as well as signs that wage-growth were increasing.

While that would be good news for Aussie consumers, labour costs eased back to 1% growth in September after climbing to 1.2% in August.

Looking at other key sub-indexes in the latest reading, Oster was also encouraged by the rise in capacity utilisation — measured as the the actual output of businesses as a percentage of their maximum output.

Here’s the table showing all the key figures for September:

There was also an uptick in capital expenditure, which Oster said suggested reasonable levels of investment activity.

However, despite the positive conditions Australian businesses continue to exercise a degree of caution.

“Such conditions have not passed through to investment quite as expected, potentially signalling ongoing risk aversion and a preference to use profits for balance sheet repair,” Oster said.

By industry, Australia’s construction sector continued to report the best business conditions and is closely followed by other major sectors:

“The construction industry has seen a steady improvement in conditions over the past year or more, likely spurred on by public investment in infrastructure and high levels of residential construction activity, and is currently seeing the highest levels of business conditions in the survey,” Oster said.

The mining and construction sectors also reported the best employment conditions, with readings of +25 and +14 respectively.

However, perhaps not surprisingly, retailing continues to lag the other sectors by a wide margin and has re-established a clear downward trend which has put the index back in clear negative territory.

“Despite the deterioration in retail conditions, confidence levels in the industry remain surprisingly upbeat. That could suggest an anticipated turn-around by firms, although weak retail forward orders suggest not,” Oster said.

By state, NSW reported the best business conditions in September and Western Australia also climbed, although in trend terms WA remains the only state still in negative territory.

Those gains were offset by monthly falls in business conditions for Victoria, South Australia and Tasmania.

“Abstracting from monthly volatility, SA has moved into the top spot for the mainland states, with trend conditions sitting at +18 index points,” NAB said.

Most states reported a rise in business confidence during the month, although there was a dip in NSW.

Overall, Oster remains optimstic on the outlook for Australian companies. “Business conditions at these levels tell us that the business sector in Australia is doing very well,” Oster said.

“We have certainly seen that reflected to some degree in areas like corporate profits and jobs growth, but other aspects of the economy – such as business investment – have been somewhat disappointing in comparison. In that context, it will be important to keep an eye on the recent softer trend in business confidence.”

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