Over the last few months, the adjectives used by NAB economists to describe business conditions have strengthened from “solid” to “elevated”. “Record high” is the current description. According to NAB’s latest monthly business survey of 400 firms conducted in the middle of February, its Business Conditions Index increased to 21, the highest reading on record since the survey began.
Typically, NAB’s confidence index leads the conditions index by approximately one month, although in recent months the two surveys have diverged and the condition index has led the confidence index higher in trend terms since late 2014. The latest figures have not changed this situation. The confidence index slipped from a revised figure of 11 in January to 9 in February, a figure which is just within the “normal” bound above the long term average reading of 6.
The capacity utilisation rate, generally accepted as an indicator of future investment expenditure, slipped back from 82.7% to 82.5%, but it is still well above its long-term average reading. All but the “Transport & Utilities” sector were reported to be operating at or above their long-run averages.
ANZ senior economist, Daniel Gradwell summed up the report. “Australian business conditions pushed higher in February, reaching a new peak. The improvement was broad based across the states, and the underlying details were positive. Businesses appear to be in a purple patch at present, and forward-looking indicators suggest this will continue to translate into a strong labour market.”