NAB Economists Call Retail Recession

By Glenn Dyer | More Articles by Glenn Dyer

Ahead of the release tomorrow of the much-watched Labour Force data for May from the Australian Bureau of Statistics, the National Australia Bank’s monthly business survey for May has delivered some gloomy findings.

The bank said business conditions weakened further last month and “are now well below average”.

Business conditions fell 2points to +1 index point in May. “The fall was driven by a decline in profitability and trading sub-components (profits down 4pts to -3 index points and trading down 5pts to +3 index points). The employment index rose to +2 index points in the month, following the sharp decline last month,“ the NAB said.

“At these levels, the trading and profitability indexes are well below average, while employment is now around average. Each component remains well below the levels of a year ago.

Business confidence rose sharply in the month (+7 index points) in a post-election spike (The NAB says the survey was sent out on May 14 but interviewing didn’t start until May 20) “but is unlikely to persist at these levels given the weakness in other forward-looking indicators.”

NAB Chief Economist, Alan Oster said in a commentary that “Business confidence saw a sharp increase in the month following the Federal election and a confirmation from the RBA that rates would be cut in June.

“We think this will be a short-term spike given other forward-looking indicators saw further deterioration in the month. Forward orders declined further and in addition to being well below average are negative. Capacity utilisation has also pulled back in 2019 to date and is now a touch below average”.

The NAB says the survey shows the private sector continuing to lose momentum which is now “the key message”.

“Trading conditions and profits are particularly weak,” according to Mr. Oster.

The slowdown is strongest in the goods distribution industries (especially retail – which the NAB says is clearly in recession) which “remain particularly weak, and manufacturing is not far behind.”

“The services industries appear to be holding up better but have also seen a deterioration over the past year.”

Looking at the performances of the states, the NAB says NSW continues to be the best performer on the mainland, while Tasmania also continues a strong run of readings.

“WA has weakened notably in 2019, despite the mining sector showing strength.

Worryingly, forward orders declined further, and capacity utilisation is now a touch below average.

“With activity continuing to lose momentum, and capacity utilisation declining, the survey continues to show weak price pressure across inputs and final products,” the NAB said.

“Across industries we continue to see the best conditions in mining and the services sector – recreation & personal, and finance, business & property services. The goods distribution industries, including wholesale and retail remain weakest” Mr. Oster said.

The service sectors continue to show the best conditions with goods distribution industries such as retail and wholesale having deteriorated sharply over recent months. In addition to the weakness in the goods distribution, manufacturing is now negative. Mining remains the most positive with conditions at high levels in the sector.

“While the retail industry has lagged the other sectors for some time, the recent deterioration has seen conditions in the industry fall to levels not seen since the GFC. This suggests that the consumer remains highly cautious with anything but spending on essentials because of ongoing slow income growth, high debt levels and possibly some concerns over falling house prices” Mr. Oster said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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