NAB business survey weathers dour consumer

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A surprisingly firm result today in the July NAB survey:

  • Business confidence showing no ill effects from the government’s ‘tough budget’, rather improving in line with better business conditions (reflecting sales and profits) – albeit conditions remain sub trend. Most industries showed better outcomes but heavy lifting done by surge in construction. Employment and capacity utilisation, however, weakened significantly. The ‘bellwether’ sectors (wholesale, transport) are giving mixed signals, while forward orders suggest little fundamental change in activity. Inflation pressures remain muted. NAB forecasts unchanged with unemployment to reach 6¼% by late 2014. Rates still expected to be on hold till late 2015.
  • Business confidence recorded an unexpected increase in the month, with firms apparently shrugging off the sharp deterioration in consumer confidence that followed May’s Federal budget. Firms are sticking to their expectation for stronger activity despite business conditions remaining below long-run averages and no change to forward orders. Stronger sales are contributing to elevated confidence levels, with the survey suggesting this has encouraged firms to invest and rebuild their inventories. However, capacity utilisation eased further from relatively low levels.
  • Business conditions rose in the month to their highest level since January, ending the downward trend that emerged since the start of the year. Nevertheless, conditions remain below the long-run average for the monthly series, which along with soft conditions in wholesale (a bellwether industry), suggests little momentum for domestic demand in the near term. Although conditions improved for all industries, levels vary significantly – service industries remain the stand out, followed by construction (wholesale and manufacturing are weakest). Sales and profits are stronger, but employment is yet to respond.
  • Our wholesale leading indicator suggests weak underlying conditions, pointing to further below trend economic growth in the second quarter of 2014 – and little near term improvement in prospect in demand.
  • Firms continue to report relatively benign inflation pressures, assisted by lower purchasing costs inflation and relatively low labour cost pressures. Retail inflation accelerated, but remains at low levels.

Here are the internals:

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Pretty good under the circumstances, though the erosion in employment intentions goes against the other promising readings. A couple of charts:

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Importantly, capex also firmed:

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But it is all about houses:

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All up a good report showing some durability in the cyclical pulse.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.