Business confidence has eased again according to NAB’s August survey, with the index falling to 1 from its previously recorded figure of +4. As part of the same survey, NAB also measures business conditions and this index rose a strong 5 points to +11. NAB said recent financial market ructions and Chinese growth concerns appear to be unsettling business confidence, although mining and construction recovered some of last month’s sharp declines and it wasn’t enough to send the confidence index negative.
According to the bank, a lower exchange rate and record low interest rates are probably offsetting weakness in the mining sector. The services sectors remain more buoyant than average, retail has improved but the wholesale industry remains weak. Business capacity utilisation rates have lifted to 81.2%, up from 80.9% and is close to the long-term average. Labour costs growth accelerated in the month but remains at relatively subdued levels and final product prices growth was pointing to moderate upward pressure on inflation.
Commonwealth Bank’s viewed the figures as quite robust: “On balance this was still a strong report and most of the subindexes were strong, with the notable exception of the employment index. But the result is only good if the fears about China prove unfounded.”
Peter Jolly, the NAB’s global head of research, in a note to clients said that some of the negative assessment of the outlook for the economy, particularly coming from international economists and journalists, were unwarranted.
He cited a business conditions chart (on the left) that showed a proxy for annual growth of the non-mining economy (red line) growing at around 3.1% year on year to June 2015. This growth line tracked well against the NAB Business Conditions survey he said and with the latest August business conditions number rising 5pts to +11 the economy was in robust shape. In fact, the chart on the right shows that when business conditions are this robust the RBA is usually lifting their cash rate target rather than lowering it.
