Best export conditions in 20 monthsBusiness survey; Consumer sentiment
Business survey: The NAB business conditions index fell to +14.1 points in March from a downwardlyrevised +20 points (third highest reading on record) in February. The business confidence index fell to +7.4 points in March from a downwardly-revised +9.1 points (previously +9.2 points) in February.
Export conditions pick-up: The NAB exporters’ sales conditions index rose to 20-month highs of +13 points in March, up from -7.8 points in February.
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.3 per cent to 115.1. Confidence is up by 2.2 per cent over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990.
‘Time to buy a household item’ rebounds: The measure of the ‘time to buy a household item’ increased to +36.8 points last week, up from +34.8 points in the previous week. The business survey has broad implications for investors and the economy. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
Business conditions were always ripe for a pull-back in March after reaching such rarefied air in February. Still, conditions remain near record-high levels and Aussie businesses remain optimistic.
The Aussie dollar has weakened against the greenback so far this year. US interest rates are higher for the first time in 17 years and the iron ore price is down 12 per cent to US$64.05 a tonne this year. The Aussie has fallen by five per cent to US76.91 cents (April 9) after reaching its most recent high of US80.96 cents against the US dollar on January 29.
Aussie exporters are benefiting from a lower currency. Sales conditions for exporters are the best in 20 months. Australia is paying its way in the world and global-facing businesses are generating strong profits. Trade surpluses have been recorded in nine out of the past 10 months. And Chinese economic activity remains firm, despite recent concerns over a Sino-US trade war.
Manufacturing activity is at record high levels according to the AiGroup’s most recent survey. And the NAB survey reaffirmed the positive health of Aussie manufacturers withconditions hovering near the best level in 20 years.
Aussie consumers are a discerning bunch. Confidence in financial conditions are above average. Everything is just peachy on the jobs front. Robust business conditions andbuoyant activity in the services, construction and manufacturing sectors are generating record employment growth. The official cash rate is anchored at record lows and inflation is capped by low wages growth and retail deflation.
Sentiment around economic conditions has softened in recentweeks. Consumers have become more wary due to global issues. Sharemarkets have become more volatile due to fears over an escalating US-China trade war.
And the good news for Aussie retailers keeps on coming. The Commonwealth Bank Business Sales Indicator and the Burea of Statistics’ Retail Trade report were both strong during February. Improving job security and record low interest rates are encouraging consumers to part with their hard earned coin.
In a further sign that consumers are prepared to spend now rather than save, the number of respondents keen to buy a household item picked-up last week.
What do the figures show?
National Australia Bank Business Survey
The NAB business conditions index fell to +14.1 points in March from a downwardly-revised +20 points (third highest reading on record) in February. The long-term average is +5.5 points.
The business confidence index fell to +7.4 points in March from a downwardly-revised +9.1 points (previously +9.2 points) in February. The long-term average is +6.0 points.
The survey was undertaken from March 23 to 29.
The rolling annual average business conditions index remains at a near-decade high of +16.3 points in March.
Components: the index of trading conditions fell from +23.6 points to +19.7 points; employment fell from +15.7 points to +8.9 points; profitability fell from +17.7 points to +14 points; forward orders fell from +10.8 points to +4.7 points.
Inflationary indicators: The monthly reading of labour costs rose at a 0.8 per cent quarterly rate in March after a 1.3 per cent rise in February. Purchase costs rose at a 0.8 per cent quarterly rate in March, unchanged from February. Final product prices rose by 0.3 per cent in March after increasing by 0.4 per cent quarterly rate in February. Retail prices fell at a 0.1 per cent quarterly rate in March after a 0.2 per cent increase in February.
Capacity utilisation edged lower to 82.4 per cent in March from 82.5 per cent in February, above the long-term average of 81.1.
The proportion of firms reporting that they did not require credit rose to 77 per cent in March, up from 55 per cent in February.
The NAB said: “The Survey results for March do not change our outlook for the Australian economy. The strength in business conditions and leading indicators are consistent with stronger economic growth in coming quarters and the Survey employment index is pointing to strong jobs growth which should reduce unemployment, and put gradual upwards pressure on private sector wages. We expect that towards the end of this year the RBA will be in a position to start increasing the current emergency low policy rate although it will depend heavily on the data flow – particularly for wages and inflation – and the risk is that any action by the RBA will be delayed”.
The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.3 per cent to 115.1. Confidence is up by 2.2 per cent over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990.
Three of the five components of the index increased in the latest week:
The estimate of family finances compared with a year ago was down from +5.6 to +4.0;
The estimate of family finances over the next year was down from +27.2 to +22.9;
Economic conditions over the next 12 months was up from +2.5 to +3.4;
Economic conditions over the next 5 years was up from +7.5 to +8.3;
The measure of whether it was a good time to buy a major household item was up from +34.8 to +36.8.
The measure of inflation expectations 2 years ahead decreased to 4.4 per cent from 4.7 per cent.
What is the importance of the economic data?
The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
Aussie businesses are buoyant. Conditions remain near record-highs. Forward looking indicators of employment, trading, profitability and orders are all positive and at elevated historical levels.
Conditions are best in the mining sector; are rising in the manufacturing sector; and are increasingly positive in the retail sector. In fact, conditions and confidence for Aussie miners are the best in six years on rising commodity prices. What’s not to like?
And Tassie is leading the way at a state level on the back of a booming housing market and the feel-good factor following the re-election of the business-friendly Hodgman government.
Business confidence is more subdued but still above long-run average. Perhaps trade war rhetoric and increased share market volatility weighed a little on sentiment during the surveyed period.
Aussie consumers remain resilient in the face of modest wages growth and share market volatility. Record low interest rates and strong jobs growth are supporting household budgets.
CommSec expects interest rates to be unchanged until at least the December quarter. Published by Ryan Felsman, Senior Economist, CommSec
Best export conditions in 20 monthsBusiness survey; Consumer sentiment