Business conditions hit nine-year high: NAB

Rising by 4 points from May to +15 points, the business conditions index hasn’t been this high since “around pre-GFC levels”, the latest NAB Monthly Business Survey revealed.

“We continue to be pleasantly surprised by just how upbeat the business sector is, given the context of a fairly beleaguered household sector that has been weighed down by limited wages growth and record levels of debt,” said NAB chief economist Alan Oster.

“In fact, there is even tentative evidence that we are now starting to see some positive spill-overs from the business sector to the broader economy,” he said.

Business confidence has risen slightly by 1 point this month, but remains well above long-term average levels.

The two biggest drivers of business conditions were stronger trading conditions and profitability, rising from +11 to +15 and +15 to +21 respectively, with the highest performing industries being wholesale, construction and manufacturing. 

Performing better than expected was the retail industry, while mining was “once again” the worst performer in the month of June.

With employment conditions steady at +7 points, Mr Oster said that they remained at “levels that would indicate enough employment growth to lower the unemployment rate over coming months.”

NAB senior economist James Glenn told Mortgage Business' sister title InvestorDaily that while he expected the RBA to hike the cash rate in mid-2019, continued improvements in the data could indicate a greater risk that the RBA would hike sooner.

However, consumer spending in the long-term continues to be stifled by “ongoing slack in the labour market” as well as “record levels of household debt”.

Although business conditions are improving, Mr Oster said it may not meet long-term expectations.

“We expect economic growth to rebound from temporary disruptions in H2 2017, but the longer-term outlook could easily underperform the RBA’s upbeat expectations as important growth drivers (LNG exports, commodity prices and housing construction) begin to fade,” Mr Oster said.

[Related: Sentiment drops over accessibility of debt finance]