The latest monthly business survey from NAB has revealed that although giving back some gains from the previous month, business conditions and confidence remain at “above average” levels.
Despite some pull-back, both business confidence and conditions remain at levels consistent with solid business activity in the near-term and are higher than through much of H2 2016, according to NAB’s research.
In February, the business conditions index dropped by 7 points to +9 index points in seasonally-adjusted terms, which is still above the long-run average (+5). Business confidence also fell back slightly (falling by 3 to +7 index points).
NAB chief economist Alan Oster said that NAB was not surprised to see business conditions drop back from their multi-year highs.
“Even so, conditions are still holding up at levels that would make you reasonably comfortable about the near-term growth prospects for the economy, putting aside some of the concerning trends we are seeing in retail,” he emphasised.
Indeed, most industries are showing solid, or improving, business conditions, although the decline in February was largely driven by a deterioration in recreation and personal services, and smaller falls in transport and finance/property/business services.
“We saw the big service industries drive the moderation in business conditions this month, but even after pulling back a little, these industries continue to lead the non-mining recovery,” Mr Oster commented.
He added: “It is encouraging to see so many industries reporting solid levels of business conditions, but it is hard to look past the disappointing results from retail, especially given the importance of consumption to the growth outlook. On a brighter note though, the industry seems to have lifted its demand for labour since last year.”
Leading indicators therefore suggest a modestly positive near-term outlook, according to NAB.
“Business conditions are still at quite lofty levels, consistent with our expectation for the economy to enjoy solid rates of growth in the near term,” Mr Oster said.
“It is the longer-term growth picture that we are more concerned about, particularly as the contributions from LNG exports, temporarily higher commodity prices and the residential construction boom fade, putting pressure on the labour market.
“However, the RBA has made it clear that they are putting increased emphasis on financial stability concerns, which is likely to impact the response of monetary policy,” he concluded.
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