Australian business conditions have been described as “solid” by NAB economists despite a substantial fall from the previous month’s reading. According to NAB’s latest monthly business survey of 400 firms in late November, its Business Conditions Index dropped back from 21 to 12. This latest figure still represents well-above-average business conditions, as last month’s reading had been the highest on record since the index was first developed in the late 1990s.
Typically, NAB’s conditions index is led by its Business Confidence Index by around one month, although in recent months the two surveys have diverged. The confidence index recorded 6 in November, a figure pretty much in line with its average for the last two years. It is also the average of the series since the survey began.
ANZ senior economist Daniel Gradwell noted this divergence. “The persistent divergence between business conditions and business confidence perhaps suggests that businesses have been surprised by the current strength of the economy. The decline in confidence is not ideal, but historically we have seen that reported conditions are the better leading indicator of movements in the real economy.”