There are confusing signals on the outlook for Australian business right now

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Over the past week we’ve seen the release of some truly appalling reads on the state of Australian manufacturing as well as the nation’s massive services sector.

The Ai Group’s manufacturing Purchasing Managers Index plummeted 9.5 points in August to 46.9, marking the first deterioration in activity levels seen since June 2015. While the measure for Australia’s services industry plunged by 8.9 points to 45.0 for the month, marking the lowest reading since November 2014.

They are terrible reads on the economy, yet the latest read from Dun and Bradstreet‘s Business Expectations Survey for the quarter ahead shows business confidence surged.

Dun & Bradstreet said that its Business Expectations Index, “the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has increased to 17.8 points for the fourth quarter of 2016, up from 12.3 points for Q3 2016, but down from 21.8 points in Q4 2015. The interim Q3 result is 9.9 points above the 10-year average of 7.9 points”.

That seems impossibly optimistic given the AiGroup surveys. Perhaps the gap between expectations and actuals reflects hope that things will improve.

Stephen Koukoulas, Economic Advisor to Dun & Bradstreet, said: “The positive tone in business expectations since the election has been sustained and the results point to a period of solid economic expansion right through to the end of 2016. Encouragingly, expected sales, profits and employment have lifted further, and all well above their long-run averages.”

“These readings for business expectations suggest the economy is growing at close to trend and that the unemployment rate will remain around 5.75% – or could even edge lower – in the months ahead. It is good news,” Koukoulas said.

Let’s hope he’s correct because the Ai Group surveys both showed big falls in the employment sub-indexes.

Manufacturing dropped 11.9 points to 44.6 and below the 12 month average of 49.6. Similarly the service sector sub index of employment dropped 6.5 points to 43.5, again below the 12 month average of 48.3.

Taken together the surveys paint a confusing picture for the economic outlook in the months ahead. That’s just another indication that warning lights are starting to flash for Australia’s economy.

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