Summary: Business conditions, confidence improve; conditions in NSW, Victoria see “significant” gains, smaller states pull back; improved confidence still “fragile”; capacity usage resumes improving; “several reasons to be cautious”.
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 as pandemic restrictions were introduced. Conditions have improved markedly since then.
According to NAB’s latest monthly business survey of over 400 firms conducted in the last week of October, business conditions improved for a second consecutive month. NAB’s conditions index registered 1, up from September’s reading of zero.
“The recovery in business conditions has been uneven across states; the smaller states have generally seen a stronger recovery in conditions than Victoria and New South Wales. However, October saw a small reversal in this trend, with Victoria and New South Wales seeing significant gains, while the remaining states pulled back,” said NAB chief economist Alan Oster.
Business confidence improved for a third consecutive month. NAB’s confidence index rose from September’s reading of -4 to +5. Typically, NAB’s confidence index leads the conditions index by approximately one month, although some divergences have appeared in the past from time to time.
Oster said, “The improvement in confidence is encouraging but remains fragile, and it will likely remain that way until a vaccine is available. In the interim, confidence will be an important factor for how quickly businesses expand employment and capex as demand normalises.”
Commonwealth bond yields jumped, following large movements overnight in US Treasury yields. By the end of the day, the 3-year ACGB yield had gained 3bps to 0.18%, the 10-year yield had increased by 15bps to 0.92% while the 20-year yield finished 17bps higher at 1.57%.