Another fall in business conditions and in confidence last month, according to the National Australia Bank’s business survey – with the weakening pushing the readings below long term average levels for the first time in months.
Business conditions fell by 3 points to +4 index points in February, driven by declines in profitability and trading sub-indexes. Confidence fell 2 points in the month to +2 index points.
NAB Group Chief Economist, Alan Oster, said in commentary with the survey results that “conditions declined in February to below average levels – with profitability and trading now below average.”
“While monthly movements in conditions have been hard to interpret in the early part of the year, this survey is based on a larger sample and surveyed well after the January period and suggests that conditions have materially deteriorated further to below average levels in 2019,” he said.
“Confidence remains below average, forward orders are negative and capacity utilisation is trending lower.
This may have important implications for both future investment and employment decisions of business” Mr. Oster said.
“While the decline in conditions has been broad-based across industries, retail remains the standout. It has now reported negative conditions for 5 months and with the outlook for the consumer remaining weak, we see little improvement on the horizon”.
“The weakness is broad-based across retail sub-industries, but weakest in car retailing and household goods. The eastern states continue to show the best conditions across the mainland, but are less confident than WA and SA,” Dr. Oster said.
Employment though was a lonely standout – unchanged at plus five, a solid reading.
“The employment index has remained resilient to date, likely reflecting that labour demand decisions typically lag economic activity. This is consistent with published ABS data which shows that growth has slowed, but employment growth and the unemployment rate remain relatively healthy.
“Leading indicators of the labour market will be important over the next few months as we assess the lags between output and employment,” said Mr. Oster.
In trend terms, conditions remain strongest in the eastern mainland states – though Tasmania remains highest overall. Confidence is generally higher in SA and WA suggesting business’ outlook is better than recent experience.
“Conditions remain most favourable in the east, though confidence is weakest in NSW and VIC suggesting there might be some further pullback there. In contrast, SA and WA see some improvement in train, though are starting from a low base” Mr. Oster said.
“Following the release of the national accounts for Q4 2018 – which showed growth has materially slowed in the private sector, the business survey suggests that there has been little improvement in the first two-quarters of the first quarter in 2019. This suggests some further growing risks to our outlook for business investment in 2019” said Mr. Oster.