Australian business confidence soars in June, ignoring Greece and China

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While Australian consumer confidence is plunging on the back of heightened fears surrounding the Greek and Chinese economies, it’s not impacting on business.

In fact, it’s improving sharply according to the latest NAB business survey, surging to +10 in June. The figure, up on May’s +8, left the confidence gauge at levels last seen in September 2013, right before the last federal election.

In a good sign for potential activity in the months ahead, all industries, bar mining, have confidence levels sitting in positive territory.

Not only did confidence improve, business conditions also jumped sharply with the gauge on operating conditions surging to +11, a level last seen in October 2014. According to the NAB “the trend is now decisively positive, suggesting the long anticipated recovery in the non-mining economy is finally gaining some traction”.

While business conditions improved sharply, it was interesting to note that operating conditions among retailers edged down in June. This is a surprising outcome according to NAB given “the Budget’s small business tax deduction initiatives were expected to have a positive impact on retailers”.

The table below shows the movement in the surveys various sub-indices. All components excluding stocks and export orders strengthened during the month, particularly in business trading conditions and profitability.

Commenting on the report, the NAB believe the recent improvement in confidence and conditions suggests a turnaround in non-mining sectors is now underway.

“Improvements in both confidence and conditions over recent months are starting to suggest a more convincing turnaround in the non-mining sectors is underway. Nevertheless, a number of hurdles remain. The more sluggish rise of the employment component is a concern, but the other components (trading and profits) have been strong for a number of months. Conditions still vary greatly across industries as the service sectors continue to outperform. The ‘bellwether’ wholesale industry eased a little and remains at weak levels. Nevertheless, it is encouraging to see leading indicators improve, including forward orders and capacity utilisation”.

Interestingly, unlike consumer sentiment concerns about Greece and China, the NAB found little impact on business confidence.

“There also appears to have been little reaction to concerns over the Chinese equity market bubble (and its partial unwinding) and ongoing issues with Greece – although the Survey was conducted prior to the escalation of Greek concerns following the recent referendum. Positive confidence was relatively broad based across industries, which could suggest greater sustainability, although growing jitters on global matters (especially in regards to China) suggests that current levels may be hard to sustain”.

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