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Business confidence down to 2-year low

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Reporter 6 minute read

Business confidence plunged to a two-year low in August, despite stabilising conditions, according to a major bank survey.

The latest National Australia Bank business confidence index dropped by 3 points to the below-average reading of 4 points in August, its lowest level in two years.

Confidence levels declined in all states, except for Queensland and Western Australia, where it remained stagnant.

The lowest level of confidence was recorded in Tasmania (2 points), though it was also below average in New South Wales (4 points) and Victoria (4 points).

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Businesses operating in the mining (20 points) and construction (9 points) sectors were most confident, while wholesale and manufacturing businesses expressed the lowest level of confidence.

Alan Oster, chief economist at NAB, said: “The mining sector continues to see the most favourable conditions across industries, even as the boom in investment winds down. This likely reflects higher than expected profitability, given commodity prices have held up over the past year and increased productivity as projects enter the production phase. Actual capex in the survey also suggests investment levels in the industry remain favourable.

“Conditions in construction also remain elevated, reflecting the large pipeline of residential and non-residential work as well as spillovers from public sector investment.

“In contrast, the retail sector remains weak, being the only industry to record negative conditions and lagging other industries as it has done for some time.”

On the other hand, business conditions rebounded in August, increasing by 2 points to 15 following a series of declines in previous months.

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Conditions remained most favourable in Tasmania (21 points), Queensland (18 points) and Victoria (15 points), with South Australia (8 points) recorded as having the least favourable conditions but still above average.

Mr Oster said: “While [the business conditions index] is some way off the highs earlier in the year, it remains well above average. This is a welcome sign of a stabilisation in business conditions.”

He attributed the lift in the business conditions index to improvements in profitability (16 points) and trading (19 points) indices, which increased by 6 points and 1 point, respectively.

The employment index remained flat at 10 points, after rebounding in July.

Mr Oster commented: “The employment index continues to suggest growth in employment of around 23,000 per month over the next six months. With a stabilisation in the labour force participation rate, this should be enough to see the unemployment rate decline further over the rest of 2018.”

Overall, the NAB chief economist said that the results of the survey were positive.

“Capacity utilisation remains high and the profitability index remains well above average. This suggests investment in the business sector should continue to grow,” the chief economist said.

Mr Oster concluded: “The dynamics around further declines in the unemployment rate and faster wage growth remain key to the outlook for monetary policy.”

[Related: Two-thirds of businesses feel unprepared for ‘digital wave’]

Business confidence down to 2-year low
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