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Business conditions fall, but remain strong

by Reporter10 minute read
Strong, boxing gloves

The level of business confidence and overall business conditions eased back in May, but the levels still remain around their long-run average level.

According to NAB’s Monthly Business Survey for the month of May, the business conditions index decreased by 6 index points to +15 index points, easing back from the historical highs seen in April.

Likewise, the report found that the business confidence index fell by 5 points to +6 index points, to be around its long-run average level.

Speaking of the drop, Alan Oster, NAB’s group chief economist, said: “Despite the easing in the business conditions index in May, conditions remain robust in the business sector. Conditions remain well above average across most states and industries.”


Mr Oster continued: “Some comfort is provided by the improvement in retail conditions in May after turning negative last month, though as suggested by the survey for some time, the retail sector continues to lag conditions in most other industries.”

The report shows that conditions eased in most industries in May, with the exception of transport and utilities and retail.

Trading conditions, profitability and employment conditions lost the gains made in April but still remain at a relatively high level.

Overall, conditions remain at or above average levels and, in trend terms, conditions remain strongest in mining.

Mr Oster commented: “While the employment index dropped in May, following a strong result in April, it remains above average and suggests a solid pace of employment growth over coming months.

“Overall, the survey continues to suggest an improvement in labour market conditions going forward, which we would expect to  translate to a gradual pick-up in wage growth over the next year.

“While the survey continues to suggest a relatively robust economy, it indicates relatively subdued outcomes for both wages and inflation growth. Both of these variables remain key to the outlook for monetary policy in 2018.”

The NAB group chief economist said that the survey results were consistent with the bank’s outlook for the Australian economy. Despite the easing in conditions, the survey continues to suggest a broad-based strength across industries and most states.

He said: “Both business conditions and leading indicators continue to suggest a pick-up in economic growth and that, over time, jobs growth should see the unemployment rate fall towards 5 per cent.

“The outlook for the labour market and evidence of a pick-up in wage growth remain key for monetary policy. Evidence of a genuine pick-up in wages growth and a flow-through to inflation more broadly will provide a launch pad for the RBA to begin lifting rates from current record lows.”

Mr Oster concluded, however, that he is not expecting this increase in the cash rate to occur until May 2019.

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