Conditions stabilising at low levels. Business conditions: remain at +4. Business confidence: down 2pts to 0.

As the 2019 year draws towards a close, conditions in the Australian economy remain weak. Policy stimulus is struggling to gain traction. The NAB business survey for November reports that business conditions have stabilised at low levels.

The survey was conducted from November 19 to 29. Given this timing, the survey is unlikely to have fully captured the recent “sales” – with Black Friday falling on November 29 and Cyber Monday on December 2.

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The business conditions index was unchanged at +4, a below average reading. The index has moved broadly sideways since April, after tumbling from +19 over the first half of 2018.

Business confidence fell by 2pts to 0, reversing the 2pt lift in October. Confidence rallied in May, after the Federal election, but the bounce was short-lived. The lack of confidence is understandable in this challenging environment – with weak domestic sales and a slowing global economy, with heightened uncertainty around international trade.

The private business surveys correctly foreshadowed the sharp loss of momentum in the Australian economy from mid-2018, a shift that was led by the home building cycle turning from boom-to-bust, as well as by consumers.

Australia’s September quarter economic report card was another disappointing one – confirming feeble and uneven growth, at 1.7% for the year. The private sector economy is in recession, with private demand contracting by 0.3% in the quarter and declining by 0.4% over the year.

The NAB survey suggests that weak conditions have extended into the December quarter and there is a lack of momentum heading into 2020.

As to business conditions detail for November: trading conditions fell by 1pt to +6; profitability improved but remained weak, up 3pts to +3; and employment conditions moved sideways, at +4.

The survey suggests that employment conditions at this level are consistent with job gains averaging 18k per month near-term (down a little from the 20k per month average for the 2019 year to date).

We note that recently the official jobs data has fallen into line with the more downbeat forward indicators from the private business surveys to be consistent with the sluggish output results. The six month annualised pace of jobs growth has slowed to 1.6%, down from 2.5% in March.

Forward orders are weak, after a one-off gain in October, falling by 5pts to -2.

By industry, while aggregate business conditions have stabilised there has been some shift in the mix. The goods sectors have tended to weaken further since April, while services have improved somewhat. The consumer sectors have lifted off their lows, but retail is still as weak levels.

By state, weakness in trend business conditions is broadly based. Of note, the survey reports that conditions have eased in recent months in WA, mirroring the trend in the mining sector, as commodity prices moderate. Over the past three months, conditions in Qld are reportedly the softest of any of the states.
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