The 'surprising' fall in NSW business conditions and confidence help drag down the NAB survey in July

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The NAB monthly business survey release this morning was a disappointment, showing that after rising sharply in June, Australian business confidence and conditions pulled back in July.

The NAB reported confidence fell 4 points from +8 to +4, while business conditions fell by the same amount to +6. Underlying the fall in confidence the NAB said was a big pullback in the construction and mining sectors.

Looking at conditions the NAB said “all three components of conditions (trading, profitability and employment) fell in the month, with trading falling the most (down 8) and employment dipping back into negative territory. But despite the falls, both trading conditions and profitability remain relatively elevated.”

The NAB remains fairly upbeat about the index levels and says that it has slightly upgraded GDP forecasts, which are “stronger than last month, with growth of 2.8% in 2015/16 and 3.2% in 2016/17”.

While last month’s survey was celebrated as an indicator that business was about to lift off, this month’s more sobering read is more in keeping with the recent release of the NAB’s broader quarterly survey which showed confidence and conditions both sitting at +4.

The one thing that sticks out in the survey is a comment that “there was a surprisingly large deterioration in NSW confidence (down 7), which was matched by a decline in business conditions (down 4).” NAB chief economist Alan Oster prefers to look through the monthly volatility noting that “NSW and Vic as the best performing mainland states.”

But, given the strength of finance and property in NSW and the recent efforts of regulators to slow the housing market and rein in investor lending and house price growth the trend and movements in NSW, in particular, over the months ahead will need to be watched closely.

Here the table of all the key Business Survey index metrics:

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