The NAB Business survey is the most important single data release each month because it gives such a deep dive into the economy seen through the eyes of business after interactions with their customers and suppliers.
So news this morning that conditions have had their largest monthly increase on record in October of 12 points from 1 to 13 is huge news.
The NAB economics team itself is a bit leery of the data given that the surge in conditions is largely driven by a huge bounce in trading (20, up 13) and profitability (15, up 14) which they say does not sit well with further falls in business confidence (4, down 1) and only marginal improvement in capacity utilisation (80.4, up 0.2).
That may be true but with the employment sub-index leaping from -5 to +2 and forward orders from -2 to 4 then regardless of concerns about noise in data this is an unequivocally solid.
But the NAB’s right.
How can we get a release like this after last week’s AiG surveys which painted a tepid picture of Australian economic growth, at least from a business point of view.
Indeed the NAB say’s that “the further fall in business confidence was surprising. This is the first time since 2012 that confidence has dropped below conditions, suggesting firms remain uncertain over near-term demand in their industry.”
And in stark contrast to the AiG Performance of Services Index the NAB reports that “services have consistently been the most optimistic.”
Even Archimedes would struggle to square that circle.
The implications for the NAB’s economic forecasts are that they have increased 2014/15 slightly from 2.8% to 2.9% and left 2015/16 unchanged at 3.2%. The NAB still believes that unemployment will “peak at around 6½% and no change in cash rate expected until tightening begins near the end of 2015.”
Over the years I’ve learnt to trust the NAB business survey and the story it tells about the Australian economy. This is great news.