NOW FOR THE GOOD NEWS: Australian Business Confidence Posted A Surprise Rise In June

Getty/Mark Nolan

The NAB monthly business survey is out and the good news is that it shows a rise in both confidence and crucially conditions.

No doubt there would not have been too many forecasts for a rise in confidence and the NAB said the rise was “unexpected” but the rise of 1 point from 7 to 8 shows that:

Firms are sticking to their expectation for stronger activity despite business conditions remaining below long-run averages and no change to forward orders. Stronger sales are contributing to elevated confidence levels, with the survey suggesting this has encouraged firms to invest and rebuild their inventories.

That is great news but equally the recovery in business conditions which rose from -1 in May to +2 is arguably just as important and potentially more encouraging for the outlook.

This rally in conditions “to their highest level since January” ends the downtrend from the peak in conditions back at the beginning of 2014.

But the NAB warns that conditions are still “below the long-run average for the monthly series, which along with soft conditions in wholesale (a bellwether industry), suggests little momentum for domestic demand in the near term”.

Equally the deterioration in the employment sub index from 0 to -3 highlights that business confidence and conditions may have improved but employment is still going to be a challenge for the economy and the NAB is forecasting an increase to 6.25% before this cycle peaks in late 2014 and rates on hold in Australia “until late 2015”.

Overall though with profitability up and trading much stronger the bounce in confidence and conditions buys the economy vital time for consumer confidence to recover.

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