Four things to know about the Australian business confidence data

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Australian Economy, Chinese Economy, Uncategorized

 

The NAB business confidence index for the month of July 2016 eased slightly to 4 points in the month of July 2016, following a downward revision to 5 points in the previous month. The monthly data released by the National Australia Bank comprises of a survey of the current business conditions in the country and is used as an indicator to signal changes in future economic activity. A reading above 0 points to improving conditions and below 0 indicates worsening conditions.

Key highlights of the survey include –

Business sentiment looks resilient: Although business confidence was moderately lower compared to the long-term average of 6 points, firms continue to remain positive in-spite of the external factors such as the Brexit and the recently held federal elections, which have posed a risk to market sentiment in the past. Although half of the industries surveyed conveyed lower confidence levels compared to June, none of them reported negative business confidence.

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Business Conditions (Source: NAB Monthly Business Survey)

Drop in business conditions: Business conditions slipped to 8 points in July from 11 points in June, largely due to a sharp fall in transportation & wholesale businesses, indicating that a broader recovery is yet to be in place. However, conditions continue to remain elevated above the long-term average of 5 points. The services sector continued to be the exceptional performer in July, while retail prices saw a rebound and employment conditions remained on growth track.

Capex, cash-flow & capacity utilization: The CAPEX index declined modestly in July, mainly due to the adverse capital expenditure in the mining sector, which also reported the weakest cash- flows. The maximum non-seasonally adjusted cash flows were reported in transport and utilities, where the capex was the highest. Meanwhile, capacity utilization recovered after a moderate decline in June, led by the manufacturing sector, pushing up the utilization rates above the long- term average.

Outlook: The survey points to a reasonably positive outlook in the near & medium term. However, in the long term, as resource exports stabilize & dwelling construction turns negative, the risks are pretty apparent. Excluding construction and the finance/ property/ business (FPB), forward orders for most industries declined, led by mining, manufacturing and retail. Global & domestic deflationary pressures could cause a downward shift in the CPI for an extended period, adding pressure on the labour market. These may require additional policy easing by the RBA if inflation has to return to the targeted band.

Even Roy Morgan Research’s Business Confidence for Australia plunged 2.8% to 116.1 in July 2016 post the inconclusive Australian Federal Election. This was despite the fact that the share market did well with the All Ordinaries closing the end of July at 5,644 (up 6.3%) from June 30, 2016.

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