Business conditions recover in February

According to the latest NAB Monthly Business Survey, business conditions rose by three points to +8 index points over the month – above the long-run average of +5.

“Another above average outcome for business conditions is a great result in the current global environment,” NAB group chief economist Alan Oster said.

“It confirms that low interest rates and a more competitive AUD are clearly having the desired effect.”

The services industry remains the top performer in terms of business conditions, while the mining, manufacturing and wholesale industries lag behind. However, conditions in both mining and wholesale did record a bounce back from large declines in January.

Business conditions improved in the construction industry, consistent with ongoing strength in the residential sector, while retail business conditions also recorded an increase.

“The service sectors have very much stepped up and are now driving an impressive rebound in non-mining domestic demand,” Mr Oster said.

According to the survey, business confidence continues to hold steady, with resilient domestic factors helping to offset concerns on the global stage.

Overall, business confidence remained at +3 index points in February. While this is slightly below average, Mr Oster said the result is encouraging.

“With global market volatilities starting to rebate as well, positive confidence levels suggest the risk of contagion from financial markets has probably fallen compared to recent months,” he said.

Interestingly, despite business confidence recording a below average result, the survey revealed a strong kick-up in reported capital expenditure by firms.

This kick-up, combined with strong profits and falls in spare capacity suggest that business spending and employment prospects are improving, according to the survey.

“Business investment is critical to future economic growth, so we are constantly looking for signs that non-mining investment is starting to fill the void left by mining projects,” Mr Oster said.

“We are finally starting to see signs of that happening.”

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