• The NAB business survey reported a pull-back in conditions in February, reversing the surprising spike in January. Notwithstanding this, the tone of the survey, both around conditions and confidence, is positive.
• The survey was conducted from February 20 to 28.
• In February, the conditions index fell by 7pts to +9, reversing the 6pts jump in January which had the index approaching the historic highs recorded pre-GFC.
• A reading at this level is still positive, being above the long-run average for this series. Also, the February result is above the lows reported during the second half of 2016 when the economy slowed in association with the July Federal election.
• The survey adds to the evidence that, as expected, the Australian economy has emerged from the slowdown in 2016. Interest rates and the low dollar are supportive of business conditions; so too an upswing in public investment; as well as a strengthening of global conditions; a jump in commodity prices; and a reduced drag from the mining investment downturn.
• Business confidence fell by 3pts to +7 in February. Despite that, there has been a trend improvement in business confidence to above average levels, lifting from the constrained levels reported throughout much of 2016. Pluses are robust conditions and an improvement in global sentiment, including in financial markets.
• This improvement in confidence could see businesses lift capital expenditure and expand employment. Detail in the survey points to this. Looking over January and February, employment conditions and capital expenditure both reportedly strengthened.
• By industry, business conditions have rebounded over recent months in the goods related sectors. This is evident in construction, manufacturing and in transport & utilities. New orders, in trend terms, are highest in construction at +16pts.
• There are still some points of concern, notably persistent weakness in retail. Also, conditions in recreational & personal fell back in February – we await the March survey to assess if this is anything more than just noise.
• By state, conditions are positive in all states, with the exception of WA, where the negative spill-over effects from the mining investment downturn are most apparent. Business conditions are strongest in the two largest states of NSW (+14) and Victoria (+12), which are benefitting most from lower interest rates (housing) and the lower dollar (boosting service exports, including education and tourism). Conditions in Qld (+8) may have rebounded from the lows of 2016, supported by higher coal prices, although the index for this state is volatile.
Still decent, still giving a false positive with not enough mining in the survey.
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.
