Australian business conditions were robust in the first half of 2018 and a cyclical-peak was reached in April. Then readings began to slip, although they remained well above average for some months. However, by the end of 2018, the readings had plunged to below-average levels. There was some suggestion conditions over the Christmas/New Year period may have been the result of temporary factors but the latest report puts that idea in doubt.
According to NAB’s latest monthly business survey of 400 firms conducted in the last week of February, business conditions dropped back below average after January’s bounce proved to be temporary. After several months of consecutive falls in the latter part of 2019, NAB’s conditions index bounced to 7 in January and then fell back to 4 in February. NAB chief economist Alan Oster said, “The decline in conditions was relatively broad-based in the month and continues a relatively sharp decline over the previous six months. The decline in confidence was more modest but the series has now been below average for some time. Forward orders fell to below average levels in the month, and capacity utilisation declined further suggesting that conditions are unlikely to regain much ground.”
The latest reading for the confidence index fell back from 4 to 2, a level which could be described as significantly below the long-term average reading of 6. Typically, NAB’s confidence index leads the conditions index by approximately one month, although some divergences appear from time to time. Now the two series have converged again, with the conditions index catching up to the confidence index after an eighteen-month gap.