Summary: Business conditions worsen; business confidence improve; numbers “largely as expected”; capacity usage reverses course after rising for 3 months; conditions deteriorate more in Queensland, South Australia and Tasmania than in Victoria.
NAB’s business survey indicated Australian business conditions were robust in the first half of 2018, with a cyclical-peak reached in April of that year. Readings from NAB’s indices then began to slip, declining to below-average levels by the end of 2018. Forecasts of a slowdown in the domestic economy began to emerge in the first half of 2019 and the indices trended lower, hitting a nadir in April 2020. Conditions then improved as pandemic containment measures were relaxed.
According to NAB’s latest monthly business survey of over 400 firms conducted in the last two weeks of August, business conditions deteriorated after three months of improving. NAB’s conditions index registered -6, down from July’s reading of 0.
In contrast, business confidence improved. NAB’s confidence index rose from July’s reading of -14 to -8. Typically, NAB’s confidence index leads the conditions index by approximately one month, although some divergences appear from time to time.
“The impact of the Melbourne stage 4 restrictions on activity is evident in Victoria with a decline in conditions, though not as bad as feared,” said NAB chief economist Alan Oster. Westpac senior economist Andrew Hanlan said the figures were “largely as expected”.
NAB’s report came out on the same day as the latest ABS Weekly payroll figures and Commonwealth bond yields remained almost completely stable in the absence of a lead from the US Treasury bond market. By the end of the day, 3-year and 10-year ACGB yields remained steady at 0.31% and 0.91% while the 20-year yield finished 1bp higher at 1.57%.
In the cash futures market, expectations of a change in the actual cash rate, currently at 0.13%, continued to remain low. By the end of the day, contracts implied the cash rate would remain in a range of 0.115% to 0.120% through to the end of 2021.