The Australia business sector has continued to do well in June and, on average, businesses have enjoyed conditions close to the boom times of mid-last decade. According to NAB’s latest monthly business survey of 400 firms in late June, its Business Conditions Index rose 4 points to 15 from a revised reading of 11 in May, while its Business Confidence Index edged up a point to 9 from May’s revised index reading of 8, which is 2 points above its long term average.
The capacity utilisation rate, generally accepted as an indicator of future investment expenditure, fell back to 81.9% from its revised May figure of 82.5%. According to NAB, capacity utilisation in the manufacturing and wholesale sectors deteriorated and they joined transport and mining as utilising less than their long term averages. Even so, NAB seemed unconcerned as they pointed to increases in other leading indicators such as capital expenditure.
Trading conditions and profitability drove the increase in the Conditions Index while employment conditions remained largely unchanged. Alan Oster, NAB’s chief economist, restated his view after the May results but with a small addition. Solid business conditions now exist across most industries and states rather than just across industries, “which suggests the recovery is becoming more entrenched.” Westpac senior economist Andrew Hanlon took pretty much the same view. “Directionally, the survey suggests that the Australian economy is experiencing a trend improvement in underlying conditions after the slowdown in mid-2016, which was associated with the July Federal election.”