Australian business conditions were robust in the first half of 2018, especially so in April when one index registered an all-time high. Readings then slipped back over the next couple of months but they have still remained at above-average levels to date. On the other hand, business confidence has trended down since mid-2017.
According to NAB’s latest monthly business survey of 400 firms conducted in the last week of November, business conditions have remained at a healthy level despite three months of consecutive falls. After revisions, the index fell from a revised value of 13 in October to 11 at the end of November. NAB chief economist Alan Oster said, “Since around mid-2018 it appears the business sector has lost some momentum…” While he acknowledged current activity levels are “reasonable”, lower confidence index readings suggest “businesses’ outlook is for momentum to ease further.”
Typically, NAB’s confidence index leads the conditions index by approximately one month, although in recent months the two surveys have diverged and the conditions index has led the confidence index higher in trend terms since late 2014. However, the business confidence index peaked in April 2017 and it has since trended lower. The conditions index peaked later in 2017 and did not exceed this reading again. It has since trended lower, indicating the confidence index may have resumed its leading indicator capacity once more. After revisions, the confidence index fell by 2 points to register 3 on the index in November. The long-term average value is 6, so it is not that far below average. However, as ANZ senior economist Daniel Gradwell put it, “ongoing declines of this scale would become a concern.”
