First it was the labour market which has been showing signs of slowing levels of activity and growth in 2018, now its the monthly survey from the National Australia Bank is starting to throw up hints that the solid level of activity across most of the economy is ageing.
The NAB’s July survey, released yesterday shows that business conditions again eased last month, continuing the trend since the April report. The NAB said the index fell to +12 index points – still above the long terms average
In contrast, after several weaker months, business confidence rose 1pt to +7 index points, an around average level.
There’s nothing alarming in these readings for the Reserve Bank which will be interested in the June quarter and 2017-18 Wage price Index data out later today, and then the July labour force data out tomorrow.
Both will give us a good idea of how strong is demand for labour and whether that has translated into a rise in the annual wage price index past the most recent weak reading of 2.1%.
NAB Chief Economist, Alan Oster said in a statement yesterday that “The business conditions index eased further this month, and has now fallen considerably since April. Despite falling over recent months, business conditions remain above average, suggesting favourable conditions have continued to persist through the middle of 2018”.
“The weakness in the month was driven by deterioration in both profitability and trading conditions, which was partially offset by a rise in the employment index” said Mr Oster.
According to Mr Oster “There was a welcome rebound in the employment index this month after the declines in each of the previous two months. Our mapping of this measure to the official employment statistics suggests that employment will grow at a stronger rate than the working-age population over the second half of 2018, which should see the unemployment rate gradually decline.”
The NAB survey showed that conditions eased across most industries in July, with the notable exception of the construction industry which rose relatively sharply; recreational and personal services and wholesale saw a small improvement in the month. The retail industry weakened further in the month.
“In trend terms, conditions in the mining sector remain highest, likely reflecting the higher than expected commodity prices over the past year, increases in productivity as projects enter the production phase and a general easing in cost pressures (though there have been some anecdotal reports of skills shortages more recently).
"Conditions in the construction sector also remain high, likely reflecting the large pipeline of both residential and infrastructure-related work. The retail sector remains clearly the weakest, declining again in the month, to see the retail conditions index fall to 0pts.” Mr Oster said.
Surveyed wage and price measures rose in July, though generally they suggest a continuation of the weak price pressures observed over recent years.
Labour costs, purchase costs and final product price growth all lifted in the month – with the former no doubt reflecting the recent national wage increase. Growth in retail product prices lifted in July after the flat outcome in June.
“The survey continues to suggest generally weak inflation pressures in the economy, despite continued growth. Surveyed price, cost and wage measures of inflation all rose a little in the month though remain at relatively low levels”.
Leading indicators weakened a little in the month, but remain around average. Capacity utilisation edged slightly lower, but remains above average after trending higher over recent years. The forward orders index continued to decline and is now around average levels.
Business confidence remains around average, but below average forward orders in the recreation & personal services and construction industries appear to be weighing on confidence in NSW and Victoria (in trend terms).