Business conditions strong but retail still suffering: NAB

The business conditions index rose by 1 point to +15 index points, which is three times the long-run average (+5). Similarly, the business confidence index rose by 4 points in July to +12 index points.

“The strong run shown by the business sector continued in July, with both business conditions and confidence seeing an improvement,” NAB chief economist Alan Oster said. “Business confidence has gradually been chasing business conditions higher for some time, and has likely seen some additional support this year from an improving global environment as well, although there are still some notable risks.”

However, the survey saw a renewed divergence across industries in July. Much of the improvement was driven by professional services, while retail and wholesale softened considerably, highlighting competitive pressures in retail and the difficulties facing households.

“Every time we think the retail sector might be closing the gap with the more upbeat parts of the economy, it seems to suffer a setback,” Mr Oster said.

“Retail conditions have generally improved since the lows of late last year, but the trend appears to be turning down again, with retail once again the worst performing industry in the Survey.”

Profitability was the only component of business conditions to improve in the quarter, while employment conditions were unchanged and trading/sales moderated slightly, but remains at very elevated levels.

According to Mr Oster, the persistent strength in employment conditions has made us a little more optimistic about the near-term outlook for the labour market.

The chief economist concluded: “That said, there are still longer-term challenges to domestic demand, which will have implications for the labour market, while the ABS underemployment rate is also suggesting that there is still a fair degree of slack in the labour market.”

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