Business conditions and confidence rose in November, continuing to suggest a rapid rebound in the economy as restrictions are eased and state borders open up. While renewed optimism in Victoria drove the improvement in confidence, Victoria was one of only two states to report a deterioration in conditions, although we expect conditions to improve as the impact of its recent severe lockdown wears off. Overall both confidence and conditions are now above average, and stronger than the period right before the pandemic – albeit this partly reflects some “snapback” following the containment of the virus. Encouragingly, other lead indicators improved in the month: capacity utilisation saw a large gain and forward orders turned positive, the latter suggesting that the pipeline of work has begun to build. That said, there is some way to go before a full recovery is reached. Capacity utilisation remains around 1.4ppt below its long-run average, while the capex and employment indexes remain in negative territory. Even with the significant improvement in trading conditions and profitability, businesses will likely to need to see a sustained improvement in forward orders and a complete recovery in capacity utilisation before renewed hiring and investment plans are put in place.
Leading indicator jumped but investment lagging as capacity ultitisation still stuffed::
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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.
