Australian business conditions & confidence: Employment conditions rise to 9 year high - Westpac

The Australian NAB business survey for August is, on balance, an upbeat report, pointing to near-term strength, particularly in employment creation, according to Andrew Hanlan, Senior Economist at Westpac.

Key Quotes

“There were a number of developments in August.

• First, conditions defied gravity, holding at elevated levels. The index rose 1pt to +15.
• Second, employment conditions strengthened, rising 4pts to +11, the highest level since February 2008.
• Third, business confidence, which is volatile month to month, fell 7 points, to +5, a level in line with the long-run average. This could be just noise in the data, or something more concerning.”

“The elevated level of the business conditions index is overstating actual conditions across the broader economy, as it has tended to do since the GFC. In part this bias is due to the exiting of firms from some sectors, such as the auto industry.”

“Directionally, the survey suggests that the Australian economy is experiencing a trend improvement in underlying conditions after the slowdown in mid-2016, associated with the July Federal election. The improvement in 2017 mirrors the lift in world growth.”

“On employment, the business surveys correctly foreshadowed the strong increase evident so far in 2017. This was after a jobs undershoot in 2016, in part due to uncertainty around the election. If the employment index remains at current levels then it points – near-term – to further vigour in jobs creation. Consistent with this, job advertisements rose 20% annualised in the six months to August, the fastest pace since 2010.”

“The survey remains less positive on business investment.”

“The lift in business conditions is concentrated in the goods sectors. In particular, the construction sector is reportedly experiencing the most favourable conditions since 2007, with positive spill-over effects to manufacturing and other sectors. There is a degree of broad based strength in 2017, namely, the upswing in public infrastructure investment; elevated home building activity; a rebound in commercial building; a lift in non-mining infrastructure work; and the waning of the mining investment wind-down.”

“As with the June quarter national accounts, consumer sectors are a source of weakness. The survey reports retail business conditions at –4 in August.”

“Business confidence trailing actual business conditions may reflect concerns around the lack of consumer demand, at a time of persistent weakness in wages growth, and hence doubts around the durability of current strength.”

“As to prospects for 2018, we are of the view that the Australian economy will slow to a below trend pace. Domestic conditions will be dented by the looming downturn in home building activity, with negative spill-over effects on employment and consumer spending. In addition, we expect the international backdrop to be less favourable, with world growth slowing, led by China, and commodity prices retreating from current highs.”