Australian business conditions have been more than just solid in the first half of 2018, having hit a record high in April. The latest readings may be lower than those in the first six months of 2018 but they still remain at historically elevated levels. The conditions index is of a certain importance. According to Westpac currency strategists Imre Speizer and Sean Callow, it “is usually the best guide to GDP growth…”
According to NAB’s latest monthly business survey of 400 firms conducted in the last week of July, business conditions deteriorated, albeit from an extremely-healthy level. After revisions, the index slipped from 14 at the end of June to 12 in July. NAB chief economist Alan Oster said, “While forward orders remain around average, which still implies growth in the sector, the declines over recent months suggest that there is some risk of a pull-back in business activity that warrants close watching over coming months.”
Westpac senior economist Andrew Hanlon had an interesting explanation for the softer business conditions which may suggest it is temporary. “Recall that in July, billions of people around the globe were transfixed by the greatest show on earth, the World Cup. No great surprise that the consumer sectors had a soft month…”
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 confidence index regained the 1 point it lost in June’s survey to record 7 in July, which is just above the long-term average reading.