Australian businesses are enjoying conditions seen once a decade, as trading conditions remain elevated and profitability is maintained. According to NAB’s latest monthly business survey of 400 firms, its Business Confidence Index jumped 4 points to 10 while the Business Conditions Index kicked up 6 points to 16. Westpac senior economist Andrew Hanlon said, “The survey adds to the evidence and supports our view that the economy is emerging from the soft spot that prevailed during mid-2016.”
Bond and cash market yields were higher by the end of the day. The 3 year bond yield was 4bps higher at 1.99% and the 10 year bond 3.5bps higher at 2.77% as markets forecast the RBA would be less likely to lower the official rate in light of buoyant business conditions.
The reversal NAB had expected after the previous survey did not take place and perhaps the explanation is what NAB refers to as “diverse and rapidly changing seasonal influences at this time of year.” In any case, NAB urges caution with regards to analysis of its latest figures while it is also concerned as to the sustainability of current conditions. “NAB Economics also have concerns for the longer-term growth picture, as the contribution from LNG exports, temporarily higher commodity prices and the residential construction boom fade, keeping pressure on the labour market.”
However, the figures were positive enough for NAB to change its interest rate forecasts for 2017 from two rate cuts to just the one at the RBA board meeting in November. Other economists, such as UBS economist George Tharenou, start from a higher base; he thinks it’s not a matter of less rate cuts but rather rate rises. “Overall, we still see the RBA on hold ahead, but business conditions have now clearly moved into historical rate-hike territory.”