Australian business confidence rebounded modestly last month, and operating conditions remained healthy, adding to signs of a strengthening recovery across Australia’s non-mining sectors.
That’s the welcome findings to come from the NAB’s latest business survey for November with the survey’s confidence gauge rising 2 points to +5.
The improvement, while still below the survey’s long-run average, was likely due to improved prospects for the domestic economy, outside of mining, being partially offset by the uncertainty towards the global economic environment at present according to the NAB.
The NAB notes “the improvement was reasonably broad based, with no industry groups reporting a deterioration in the month.”
Fitting with the improvement in confidence, the NAB’s separate gauge on business conditions held at steady at +10, following upward revision to the +9 reading previously reported for October.
This chart from NAB shows the trend in business operating conditions by individual sector. Whole those in mining remain at very weak levels, it is clear that conditions for non-mining sectors are largely trending higher at present. Clearly record low interest rates, the lower Australian dollar and recent house price gains are helping to boost conditions, particularly in the household services and retail sectors.
Helping to boost the headline reading, gauges on on trading and profitability increased by 2 and 3 points respectively to +18 and +13 apiece. As the table below reveals, there was also a strong rebound in forward orders – a good sign for future levels of activity – while gauges on stocks and and exports held marginally in positive territory.
If there was one area of weakness to come from the survey it came from the employment gauge – watched closely given its track record for being reliable a lead indicator for future labour market conditions – which fell from +3 to +1 during the month.
Overall capacity utilisation also declines to 80.9% from 81.2%, although the NAB note that much of the weakness was due to a heavy decline in mining sector activity.
Despite those small pockets of weakness, NAB group chief economist Alan Oster described the report “as another strong result”, suggesting that Australian’s “can put more faith in the building non-mining sector recovery.”
“Interest rate and AUD sensitive industries have generally outperformed, while improvements in areas such as retail in November are an encouraging sign that the recovery is becoming more entrenched,” wrote Oster following the release of the November report.
“In contrast, mining continues to weaken. This is also reflected in variations across states. In fact, the survey is showing a widening gap between deteriorating mining/mining services (-21) and the rest of the economy.”
Despite the decline registered in capacity utilisation over the month, Oster believes the trend points to strengthening operating conditions in the months ahead.
“Capacity utilisation is a useful measure of the underlying health of the economy. It eased a little this month, but the trend remains distinctly positive, which bodes well for business investment and the labour market,” said Oster.
In conjunction with strengthening labour market conditions – not only in the official ABS data but complementary releases such as the ANZ job ads survey – the strong business survey for November suggests that Australia’s economic transition is gaining traction, suggesting that business investment and household consumption may accelerate in the period ahead.
That’s a welcome development, and provides a timely reminder that Australia’s economy – amidst a sea of bearish headlines relating to the mining sector – is still heading in the right direction at present.