NAB Survey Underscores Soft Economy

By Glenn Dyer | More Articles by Glenn Dyer

After the solid rise in housing finance for July and the second month of rising house prices in Sydney and Melbourne, some silly analysts and media writers are starting to talk about a rebound.

The impact of the two rate cuts from the Reserve Bank, the tax refunds which have still to show up anywhere in spending data – the 10.6% slide in new car sales in August was a shock in that respect.

Exports are still solid with iron ore shipments to China up sharply and global prices are now well over $US94 a tonne.

But in the real economy, the softening in business conditions and confidence continues with both measures now well under long term averages in the August business survey from the National Australia Bank.

This is the longest and most respected of the business surveys and the message from last month is the gloom the survey has been revealing for the past year, is deepening.

The NAB said yesterday that the survey had shown both business confidence and conditions declined in August.

“This outcome suggests that momentum in the business sector continues to weaken, with both confidence and conditions well below the levels seen in 2018 – and is in line with the weak outcome for the private sector in the Q2 national accounts, prompting us to review our outlook for interest rates. (That and new forecasts will be issued by the NAB later on Wednesday).

“Weaker conditions and a decline in forward orders (which are negative and well below average), have seen reported capex decline to around average. While capacity utilisation rose in August, it has been volatile in recent months and is a little below the levels seen a year ago,” the NAB reported.

“Despite the slowing in activity, and a pull-back in expansion plans, the employment index remains around average.

“At one end of the scale, mining continues to stand out, seeing the most favourable conditions and confidence, as well as elevated employment and capex. Retail on the other hand, remains weak despite a sharp improvement in the month, with conditions deeply negative.

“Construction and manufacturing are also weak, likely reflecting developments in the residential construction sector as well as weak domestic demand and globally weak confidence. The survey still suggests weak price pressures, which against a backdrop of slowing activity may well weaken further,” the NAB said.

Business conditions fell 2 points to +1 index point in August, with the trading and profitability sub-indexes lower. The employment component rose 2pts to be around its average level. The decline in the month was driven by transport & utilities, finance, business & property services and mining. Retail saw a significant improvement, though remains very weak with conditions deeply negative.

Business confidence also declined in the month, falling 3pts to +1 index point. While it remains positive, it is well below its long run average of +6 index points. Confidence was weaker across most industries, but increased in manufacturing and mining in the month, according to the survey.

Alan Oster, NAB Group Chief Economist said in a commentary on the survey yesterday “Both confidence and conditions declined further in the month, and have continued their run of below-average reads. Looking at the components of business conditions, both trading and profitability weakened. Employment rose to its average level of +2 index points, which is positive but something we will continue to watch closely”.

“Conditions in the retail sector remain very weak, even after a sharp improvement in the month. This provides us with another indicator that household consumption has remained weak well into Q3, following the weak outcomes over the past few quarters.

“It looks like the tax cuts have had little impact on household consumption or have not been large enough to offset increasing weakness in the sector. The two rate cuts also may have had little impact, though this is expected with the longer and more variable lags of monetary policy” said Mr Oster.

Business confidence and our other forward looking indicators suggest there is unlikely to be an imminent turnaround in business conditions. While conditions are still positive, they have now been below average for some time and point to a significant loss of momentum in private demand. This has played out in official data, with the national accounts for Q2 suggesting the bulk of growth in the quarter was driven by the public sector and exports” 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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