Business confidence has recovered after a reduction in financial market volatility and the Federal Government’s leadership change, according to NAB’s September survey. The index rose 4 points to +5, reversing the 4 point drop in August. As part of the same survey, NAB also measures business conditions and this index remained steady with last month’s reading of +9.
NAB noted the improvement in confidence was not broad-based with the mining sector still under pressure and “notable” deteriorations in the construction and finance sectors, while the service sectors “continue to outperform”.
According to the bank, a lower exchange rate and record low interest rates are continuing to provide support to the non-mining sectors. Capacity utilisation lifted again to 81.3%, previously 81.2%, which NAB says bodes well for non-mining business investment and the labour market.
Labour cost growth increased in the month but the growth rate was 0.6% for the quarter and final product prices growth was slightly lower in September at a quarterly rate of 0.2%. NAB viewed the low growth in product prices as evidence that firms are currently finding the passing of higher prices on to customers as difficult, thus keeping consumer inflation contained.
JB Were said, “Components of the report were indeed encouraging, however the details of today’s survey caution against an overly optimistic interpretation of the headline result”, while AMP Capital’s Shane Oliver said the business conditions were still “OK”.
NAB said “the ongoing high level of business conditions and trend improvement in key leading indicators such as capacity utilisation supports our view that the gradual recovery in the non-mining economy is becoming more resilient.” In a statement which makes it the most optimistic of the banks, it said it views “market pricing for another 25bps cut over the coming 6 months as overly pessimistic.”
