NAB business indices fall, “solid” June quarter still anticipated

13 July 2021

Summary: Business conditions deteriorate in June, still elevated; confidence subsides; points to “solid outcome” in June quarter; Australian economy has “considerable momentum”; survey conducted in period with more coronavirus cases, additional restrictions; business conditions will likely deteriorate further in July; economy has “considerable momentum”; capacity utilisation rate declines; all sectors of economy still at/above respective long-run averages;

 

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 index 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 index trended lower, hitting a nadir in April 2020 as pandemic restrictions were introduced. Conditions improved markedly over the next twelve months.

According to NAB’s latest monthly business survey of over 400 firms conducted over the second half of June, business conditions deteriorated, albeit to a level which is still elevated. NAB’s conditions index registered 24, down from May’s revised reading of 36.

Business confidence subsided although it remained at an above-average level. NAB’s confidence index dropped from May’s reading of 20 to 11. 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.

“Overall, the survey points to a solid outcome in the June quarter for economic activity and continues to reflect the support of both fiscal and monetary policy,” said NAB senior economist Gareth Spence.

Long-term Commonwealth Government bond yields rose a touch on the day. By the end of the day, 10-year and 20-year ACGB yields had each crept up 1bp to 1.33% and 1.91% respectively. The 2-year yield finished unchanged at 0.35%.

In the cash futures market, expectations of a change in the actual cash rate, currently at 0.03%, remained largely unchanged. At the end of the day, contract prices implied the cash rate would creep up to around 0.19% by October 2022.