- NAB’s business survey showed Australian business conditions maintained their downward trend in November.
- In addition, confidence around the outlook fell below its long-term average.
- NAB’s chief economist Alan Oster highlighted the risks faced by Australian businesses from the recent declines in domestic consumption.
Australian business conditions fell noticeably in November, continuing a “downward trend” seen over recent months.
NAB’s latest business survey showed business conditions fell two points to a reading of +11.
Perhaps more ominously for the economic outlook, confidence fell to a 2018 low of +3 and is now below its long-term average.
A summary of the key metrics from the latest survey:
“Declines in business confidence to below average levels also suggest business es ’ outlook is for momentum to ease further,” said NAB chief economist Alan Oster.
“Indeed, forward orders — the most reliable indicator of domestic demand — fell in the month and are now below average for the first time since late 2016.”
Looking at the key themes for the month, NAB dialled in on the retail sector amid ongoing concerns on the consumption outlook in an environment of falling house prices and low wage growth.
NAB highlighted the consumption component of last week’s Q3 GDP report, which revealed a slowdown after two solid quarters of growth.
“This reflected lower spending on discretionary items with the only growth occurring in finance & insurance services, transport services and food,” NAB said.
“This weakness in consumer demand would be expected to weigh on businesses, with weaker demand for their products and compression of their margins as a result of increased competition.”
As a result, the retail sector continues to lag other industries in the measures for both business conditions and confidence.
Despite the negative trends in this month’s report, NAB’s Oster said the data is still cause for optimism on Australia’s labour market — which has taken on central importance in the outlook for the broader economy.
Based on historical trend, the employment index is “consistent with jobs growth of about 20,000 per month”, Oster said.
“Taken at face value this should be enough to see the unemployment rate decline further over the next 6 months, albeit at a slower rate than in previous months.”
By industry, conditions are still highest in the mining sector, while business sentiment in the construction sector had a sharp fall in November.
By state, business conditions remain strongest in the eastern states although confidence weakened in NSW and Victoria – the two states hit hardest by recent house price falls.
In assessing the impact of falling house prices, Oster said it wasn’t having a negative effect on business conditions just yet.
“While falling house prices have garnered much media attention of late, businesses do not yet suggest they are having a material impact,” Oster said.
“Falling house prices in themselves may have a “wealth effect” on households but given the prior large run up the impact of the declines to date is unclear.”