There’s some really positive economic news for Australia in the NAB business survey for March.
The survey showed that both conditions and confidence rose during the month. Conditions jumped from 2 in February to 6 in March, while the more fragile confidence survey rose from 0 to 3.
That doesn’t sound like much but NAB Chief economist Alan Oster said in a note accompanying the release that this “level of conditions is pointing to a slightly above average rate of activity.”
That’s great news for an economy in transition searching for a non-mining growth engine.
But while conditions recorded a “notable lift” it is the increases in the sub-components, trading, profitability, and employment, which tell the story of an improving business backdrop.
Drilling a little deeper Oster said:
By industry, there was a surprisingly strong improvement in conditions for the ‘bellwether’ wholesale industry, while construction improved significantly as well. In contrast, mining and retail were the only industries to record a (slight) deterioration. The export index is yet to respond to the more favourable AUD, while orders are soft (and down slightly). Capacity utilisation and capex, encouragingly, both improved.
Oster says that means the economy is still struggling to replace the fall in mining-related investment while at the same time the economy continues to be buffetted by falling commodity prices. But even with a cautious consumer “recent retail sales have been more encouraging.”
This is important because he says in his release that if conditions and confidence are maintained “it could well boost confidence further.”
Oster said the economy is not weak enough for the two rate cuts the market is currently pricing. Rather, the NAB sees just one rate cut in coming months, most likely May. But, Oster is ebullient enough to suggest that it “could be delayed if the non-mining economy recovery becomes more entrenched.”
As for what happens next, the federal budget – which we’re being told will be “dull and routine” – is absolutely critical.
The ANZ consumer confidence index, also released this morning, showed that in general Australian consumers remain wary of the future. Consumer confidence, ANZ’s Warren Hogan noted, remains in the danger zone.
A repeat of the uncertainty and confusion that stemmed from last year’s budget could send consumers back into their shells, taking business confidence along with them.