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NSW and Victoria see weakest levels of business confidence

Reporter 2 minute read

Business confidence rose in July, but the weakest levels of confidence were reported in NSW and Victoria despite their strong economies.

According to NAB’s monthly business survey for July 2018, business confidence remains around average at +7 index points, up by 1 point on the month before.

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Confidence remains highest, in trend terms, in the mining (+32) and construction (+11) industries, and lowest in transport and utilities and manufacturing industries.

In trend terms, confidence was highest in South Australia (+10), followed by Western Australia and Queensland (both +9).

Confidence in New South Wales and Victoria was again the weakest (both +4).

According to NAB, this could be due to “below-average forward orders in the recreation and personal services and construction industries”.

Meanwhile, business conditions index fell by 2 points to +12 index points in July, following an unchanged outcome in June.

Conditions eased across most industries in July, with the exception of the construction industry which rose relatively sharply. Recreational and personal services and wholesale saw a small improvement in the month, while the retail industry weakened further in the month.

In trend terms, conditions in the mining sector remain highest, “likely reflecting the higher than expected commodity prices over the past year, increases in productivity as projects enter the production phase and a general easing in cost pressures (though there have been some anecdotal reports of skills shortages more recently)”, said Alan Oster, NAB’s group chief economist.

Finance, business and property services also had among the high business conditions.

“Conditions in the construction sector also remain high, likely reflecting the large pipeline of both residential and infrastructure-related work,” Mr Oster said.

“The retail sector remains clearly the weakest, declining again in the month, to see the retail conditions index fall to 0 point,” Mr Oster said.

The NAB chief economist highlighted that while there has been a drop in conditions in recent months, they remain above average, “suggesting [that] favourable conditions have continued to persist through the middle of 2018”.

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He said: “The weakness in the month was driven by deterioration in both profitability and trading conditions, which was partially offset by a rise in the employment index.”

According to Mr Oster, there was a “welcome rebound” in the employment index in July, after the declines in each of the previous two months.

“Our mapping of this measure to the official employment statistics suggests that employment will grow at a stronger rate than the working-age population over the second half of 2018, which should see the unemployment rate gradually decline,” Mr Oster said.

Surveyed wage and price measures rose in July, though generally they suggest a continuation of the weak price pressures observed over recent years.

The NAB chief economist said: “The survey continues to suggest generally weak inflation pressures in the economy despite continued growth. Surveyed price, cost and wage measures of inflation all rose a little in the month though remain at relatively low levels.”

Overall, the survey results are broadly in line with the outlook for the economy for the rest of 2018.

“The business sector looks relatively healthy,” Mr Oster said, “and we expect to see enough employment growth to see a gradual reduction in spare capacity, which should in time see a rise in wage growth and a more general lift in inflation. Though, we will be closely watching trends in the forward indicators which may be signalling some slowdown in the business sector.”

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NSW and Victoria see weakest levels of business confidence
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