Conditions for ASX300 companies just hit a record high, but they're still inexplicably glum

Getty/ Paula Bronstein

Gee whiz, no wonder RBA Governor Stevens and his colleagues at the RBA still have an easing bias even though business conditions in the Australia are so strong.

That’s evidenced in this morning’s release of the NAB quarterly business survey for ASX300 listed companies. The survey showed conditions for this group of firms “rose to a new survey high of +20 points (up +12 from +8 points in the previous quarter).”

But the survey also showed that “business confidence slipped (+7 to -4) across all industries to be lower than the levels reported in NAB’s main Quarterly Business Survey (which covers the broader economy) & SME surveys.” The NAB highlighted that the “gap between very big and small business is now at its widest margin since this survey began.”

Worryingly against the backdrop of good conditions the NAB said that “In terms of capital expenditure, fewer non-mining firms are planning to increase cap-ex in the next 12 months.”

Here the chart summary:

Why confidence and capex plans are weak when conditions are solid is hard to fathom.

Indeed Alan Oster, NAB chief economist, said “ASX 300 business conditions subcomponents improved sharply over the quarter, with trading conditions out-performing, reaching a new survey high of +30 points (+21 previously). Profitability improved from +13 to +20 points”.

Employment is also picking up with conditions back in positive territory (+6 from -5) after a period in the red. Oster said that employment conditions “vary widely across industries.”

Overall it’s good news that Australia’s big firms are trading well, profitable and experiencing solid business conditions. It’s healthy these big firms are also more positive about their hiring intentions.

But the caution toward capital expenditure and lack of confidence (even though this survey pre-dates the Turnbull prime ministership) suggests the current recovery remains somewhat fragile.

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