Early in December, business conditions had been described as “solid” by NAB economists. Then they were upgraded to “strong” in January. Now they are described as “elevated” but in reality they are just short of “never better”. According to NAB’s latest monthly business survey of 400 firms conducted in the last week of January, its Business Conditions Index jumped to 19, just short of its all-time high of 20.
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 latest figures have not changed this situation. The confidence index increased from a revised figure of 10 at the end of December to 12 at the end of January, a figure which is just within the “normal” bound above the long term average reading of 5.
The capacity utilisation rate, generally accepted as an indicator of future investment expenditure, jumped from 82.2% to 82.7%, well above its long-term average reading. According to NAB chief economist Alan Oster, this is a good sign for business investment in plant and equipment. “This bodes well for business investment, although surveyed capex pulled back a little this month.” It also is a good sign for additional employment. “Capacity issues can also be addressed by taking on workers; a rise in the capacity utilisation indicator also tends to be associated with a decline in unemployment levels.”