Summary: Business conditions improve in May, another new record high; confidence declines, still elevated; points to “strong outcomes” in business sector”; capacity usage rate slips; all eight sectors of economy above respective long-run averages; “suggests sharply lower unemployment in near-term”; breadth of strength in survey encouraging, points to ongoing recovery in all sectors.
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 and NAB’s indices are both back at elevated levels.
According to NAB’s latest monthly business survey of over 400 firms conducted over the second half of May, business conditions improved again as the NAB index hit another record high. NAB’s conditions index registered 37, up from April’s revised reading of 32.
Business confidence subsided slightly but remained at an elevated level. NAB’s confidence index declined from April’s revised reading of 23 to 20, just a few points below April’s record-high reading. 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.
“The survey continues to point to strong outcomes in the business sector, with business conditions resetting their record high for the second month in a row and forward orders also holding at a record level,” said NAB chief economist Alan Oster.
Long-term Commonwealth Government bond yields fell on the day, in contrast with overnight movements of their US counterparts. By the end of the day, the 3-year ACGB yield slipped 1bp to 0.20%, the 10-year yield had shed 3bps to 1.55% while the 20-year yield finished 5bps lower at 2.24%.
In the cash futures market, expectations of a change in the actual cash rate, currently at 0.03%, remained fairly stable. At the end of the day, contract prices implied the cash rate would creep up to around 0.16% by October 2022.