The NAB business survey for October is out and has faded a little:
Business conditions were unchanged at an above average +9 index points in October, again consistent with the theme of recovery in non-mining sectors of the economy. By component, employment conditions maintained the improvement recorded last month, while trading conditions improved modestly and profitability eased – although both of these remain at very elevated levels. Service sectors continue to report more favourable conditions than other industries, despite a pull-back in personal services during the month, while mining, manufacturing and wholesale were all negative. Capacity utilisation increased further this month, which bodes well for business investment and the labour market. But despite solid conditions, forward orders have weakened (turning negative in the month), raising the risk of a softening in activity in the very near term.
• Business confidence remains somewhat fickle, despite persistent strength in business conditions. The confidence index eased back in the month, unwinding much of the gain following the Government’s leadership resolution and a paring-back of concerns about emerging markets. Nevertheless, confidence remained positive (at +2) – albeit still well below the long run average – and was unchanged in trend terms (+3). The deterioration was reasonably broad based, with only finance/ property/ business, manufacturing and mining improving (although mining remains negative).
The modest but better than recently employment number is the key source of hope. But the internals are starting to weaken despite firm conditions, confidence is down:
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Capex looks toppy and low inventories speaks to lousy confidence:
Sentiment in interest rate sensitive sectors is weakening faster than conditions:
By no means a bad survey but erosion is present. Full report.
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.
