NAB: There's only one thing stopping a resurgence in business investment

Getty/Ian Walton

The NAB released its quarterly business survey this morning. That’s the big brother to the monthly survey the NAB releases. It has more participants and takes a deeper dive into the economy.

For the second quarter the survey showed that business confidence, +4 from 0 last time, just hit the highest level since the third quarter last year. Business conditions also printed +1, rising a point from the first quarter of the year.

Both measures are substantially down on the latest reads of +10 for confidence and +11 for conditions from the smaller monthly survey for July. But NAB chief economist Alan Oster highlighted the quarterly results were still strong as they were at or above the long-term averages and “firms’ expectations for future activity improved”.

He highlighted the building momentum within the business sector saying:

While Australia continues to face a ‘patchwork’ economy, the Q2 Survey finally gave some indication that positive momentum is broadening across sectors. In particular, confidence is now positive for all industries outside of the mining sector. This is not the case for conditions, although fewer industries had negative conditions in Q2 than last quarter.

Equally if you look at the trading and profitability numbers and then view them against the latest monthly survey, it is clear that the preconditions for investment – capex – outside the mining industry are also growing.

On the topic of Australia’s much-needed lift in business investment and capital expenditure, Oster said:

Current business investment activity has lifted from the lows of recent years, and hit its highest level since late 2013 in Q2. The mining capex index for Q2 was the worst performing among the major industries, at -23 points, followed by transport/utilities at -3 points. Construction capex was surprisingly weak (-2) which likely reflects a sharp drop in mining construction activity – offsetting stronger residential construction. In contrast, current capex is highest in recreation & personal services (+23), followed by retail (+21). Nevertheless, the NAB expected capex index suggests growth may lift notably in the next 12 months, even though expectations eased in Q2.

Part of this improved outlook is that capacity utilisation throughout the economy has lifted and, at 80.9%, is above the long-run average.

“The upward trend in utilisation rates is an encouraging sign for future business investment activity,” Oster said. But he highlighted the fact that businesses still require very high hurdle rates is a handbrake on investment.

But, as the improvement in the quarterly and monthly readings for profitability and trading suggest, the overall environment for Australian businesses is looking better.

From there, it’s not a long hop to investment and capital expenditure. That’s good news for Australia’s economic transition.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.