Business confidence and conditions rose in the National Australia Bank’s monthly survey for October, released yesterday, thanks to the slow emergence of Victoria from its months of hard lockdowns.
But while the economy continues to recover, the improvement remains scatty with signs of a slowing in some states such as Queensland and Western Australia.
NAB’s chief economist, Alan Oster said “Conditions have improved everywhere since troughing in April.”
“However, some industries (and states) have seen stronger gains. Retail has been a strong performer, despite the deterioration in the labour market, likely reflecting the strong income support from the government.
“Services have also recovered – and likely seen some pent-up demand more recently,” said Mr Oster.
“NSW and Vic saw notable gains,” he added.
The NAB survey showed confidence jumped to its highest level since mid-2019, led by a large gain in Victoria.
“This was likely driven by the fall in COVID-19 case numbers and the looming end of lockdown in Melbourne. By industry, recreational & personal services and construction saw notable increases,” the NAB said on Tuesday.
Conditions improved – but by a more circumspect 0.1 to +1 index points – and the NAB pointed the improvement was led by a large gain in Victoria.
However, while the improvement in confidence is encouraging, the NAB said results across other “survey variables (and regions) were mixed.”
While Victoria saw a significant improvement in conditions, the NAB pointed out that there were notable declines in South Australia, Queensland and Western Australia.
“Trading conditions and profitability drove the marginal improvement in conditions, but the employment index remains weak at -5 index points, suggesting the labour market is lagging the recovery inactivity.
“Forward orders and capacity utilisation improved in the month, but the former remains negative and the latter is still below pre-COVID levels. ”
Despite all these qualifiers, the NAB said its survey again showed that the economy has rebounded from the sharp fall in activity in H1 2020 and will likely continue to recover as the economy reopens.
“However, it will likely take some time for activity to fully recover, with capacity utilisation restored and the pipeline line of work replenished.
“The improvement in confidence is encouraging but remains fragile, and it will likely remain that way until a vaccine is available.
“In the interim, confidence will be an important factor for how quickly businesses expand employment and CAPEX as demand normalises,” Mr. Oster said.
By sub-component, trading and profitability drove the gains, up 4pts and 3pts respectively. Employment rose 1pt but still remains negative (-5 index points), the NAB said.
Mr. Oster said the survey was conducted in the last week of October – around the time of the announcements of re-opening in Victoria. Both confidence and conditions saw a notable improvement in the state, though given the weaker starting point continues to lag the other states.
“Victoria had not yet seen the end of Melbourne’s lockdown but expectations saw a rebound in confidence. We will continue to watch developments in the state, which is around a quarter of the national economy,” said Mr. Oster.
