Westpac: NAB Business Survey “another weak report card”

From Westpac’s Andrew Hanlan:

The NAB business survey for June revealed that the spike in business confidence in May (post the Federal election and with the RBA set to cut rates) was a one hit wonder.

The survey was conducted from June 18 to 28. Recall that the previous survey was conducted around the time of the May 18 Federal election (it was sent out on May 14 and interviewing was from May 20 to 24).

Business confidence fell 5pts to +2 in June, a below average reading. This largely reversed the 7pt spike in May.

At the time of the May survey we highlighted that: “The key question, will the jump in confidence be sustained?” The sharp and immediate reversal in confidence highlights that currently the business environment is a challenging one.

The March quarter National Accounts, released on June 5, was another weak report card. It revealed that annual output growth had slowed to the softest pace in a decade, at 1.8%, and that for the past three quarters annualised growth was an anaemic 1.2% annualised.

The business conditions index rose in June, up by 2pts to +3, also a below average reading.

For the June quarter, conditions averaged +2, representing a sharp loss of momentum from the +18 prevailing in mid-2018. The Q2 outcome is the weakest in five years, since mid-2014.

Trading conditions rose by 3pts to +6 and averaged +5 for the quarter, well down from +24 a year earlier. • Profitability is being squeezed in the current sluggish environment, with the index unchanged at -2.

Employment conditions, having slumped to -2 in April, moved a little higher, up 3pts to +5, which is an above average reading for the series.

The survey suggests that the current reading is consistent with near-term job gains of 20k per month – an outcome which would keep the unemployment rate broadly steady (assuming a flat participation rate). We expect jobs growth to slow given recent weakness in activity and in profits.

Forward orders were weak, unchanged at -4, suggesting that soft business conditions are likely to persist near-term.

Of interest is whether forward orders will jump in coming months, post the Federal election and with policy stimulus being deployed via RBA interest rate cuts and tax cuts.

Capital expenditure has trended lower in 2019, as confirmed in the June survey update, see chart overleaf. The capacity utilisation rate jumped in the June survey – a result that appears to be inconsistent with the overall tone of the survey, pointing to the risk that this is reversed.

By industry, the trend deterioration in the consumer sectors continues, evidence that households remain under pressure (see chart overleaf). By contrast the ‘finance, property & business segment’ recorded a bounce in conditions as sentiment towards the established housing market improves.

By state, business conditions across NSW and Victoria remained at below average levels, at +3 and +4 respectively, see chart overleaf. The housing downturn, which is set to continue in terms of building work, is having a material impact the two larger states.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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  1. DominicMEMBER

    Fraudy has apparently demanded that people spend their tax rebates in the shops:
    1. Spending good
    2. Saving bad
    3. Paying down debt … even badder

    Jail time being contemplated for transgressors, no doubt. Tweedle dum and Tweedle dumber desperate not to look like complete chumps as their policy measures flop.

    • MountainGuinMEMBER

      I thought the msg was for individuals to spend but that govt would keep saving to land the surplus. Do what I say not what I do..?

    • Jumping jack flash

      You dont need to pay down debt. Just the interest should be good enough. Its a great earner for the banks.
      Take on more debt and spend it.
      Somehow, through magic i guess, because nobody knows how, that debt is going to cause wages to rise and create new fulltime positions and bring back inflation.

      Unfortunately they all conveniently forget that this is all fake, nonproductive debt money created by banks which costs the economy real, productive money to have. The banks dont want them to remember either.

      • DominicMEMBER

        The end game for the banks would have arrived ages ago were it not for mass immigration. The Big 4 have tried to expand abroad (several times) and had their ar$es handed to them every time.

        In the meanwhile, with most punters borrowed to the eyeballs already, trying to grow earnings 10% a year within your own borders becomes quite a challenge.

      • HadronCollision

        Every time we refi (moves to take advantage of IR) I try and knock off 1-3 years off our term.
        Westpac always insists on serviving over 30 years, it’s BS

        Dad was a State Bank Vic mgr and told me they culturally always encouraged people to pay their mortgages off as quick as possible.

      • @Hadron back before the banking dark times (Obi Wan voice) before deregulation. Haha.

  2. With all leading indicators in the gutter what is the forecast 20K month jobs growth coming from? More likely we are losing 20K jobs month in hours worked / reward for effort terms