Business conditions slipped in August – unwinding most of the previous month’s gains – but confidence rose, with Victoria seeing a sharp improvement.
According to the NAB, the weakening in business conditions reflects weakening employment indicators, trading, and profitability, while the improvement in confidence in Victoria reflects progress on controlling COVID-19 infection numbers – which has continued into September.
NAB’s monthly business survey for August showed business conditions fell 6 points in August to -6 index points while business confidence, rose 6 points to a still negative reading of -8 index points after the sharp fall in July.
Confidence remains negative in all states except Queensland and Tasmania and is weakest in Vic despite the sharp rise in the month.
But not all the blame for the fall in business conditions can be sheeted home to the lockdowns across Victoria and especially Melbourne.
According to the NAB’s chief economist, Alan Oster, conditions went backwards following a strong rebound in recent months with weaknesses emerging in Queensland, South Australia and Tasmania (all of which still have closed borders and low infection rates) showing steeper falls than in Victoria.
But he said Victoria was the problem state in August because of the tough lockdowns.
The NAB said the impact of the Melbourne stage 4 restrictions on activity is evident in Victoria with a decline in conditions – though not as bad as feared.
“Encouragingly, confidence in Victoria improved in the month, likely reflecting an improvement in case numbers. That said, Victoria continues to show the weakest confidence and second-worst conditions across the states,” the bank pointed out.
The fact that the other states have seen a pull-back suggests that the virus continues to pose a risk everywhere, not just states with significant containment measures in place” said Mr Oster.
Jobs remain a major concern and “the weakness (in business conditions in August) was primarily driven by a deterioration in the employment index – suggesting that while the economy has generally begun to open up, the labour market is still weakening,” Mr Oster said.
NAB says the decline in conditions was broad-based across states except for NSW. The decline in WA was more modest.
“Overall, conditions remain most favourable in Tasmania and WA, while the other states all show negative conditions readings. Conditions are now weakest in Queensland and Victoria,” the NAB said.
“Given the sheer magnitude of the fall in activity in Q2 and the subsequent lockdowns in Victoria, it’s is likely we will see a protracted recovery and a rise in the unemployment rate before it gets better,” Mr Oster said in commentary on the report.
“Policy makers have provided unprecedented support – but we think there will need to be more. This would help businesses and the economy recover more quickly and the focus can again return to growth” Mr Oster said.