Aussie businesses to continue hiring spreeNAB Business survey; Consumer sentiment
Business confidence: The NAB business confidence index rose to +6.2 points in September from an upwardly-revised 25-month low of +5.2 points (previously +4.4 points) in August. The long-term average is +6.0 points.
Business conditions: The NAB business conditions index rose to a three-month high of +14.8 points in September from a downwardly-revised +14.0 points (previously +15.2 points) in August. The long-term average is +5.8 points.
Employment conditions: The employment component of the NAB business conditions index rose from +9.5 points in August to +11.9 points in September – the third highest level in 12½ years. And the 12- month moving average of +10.0 points is a record high. The long-term average is +1.9 points.
Consumer sentiment: The ANZ-Roy Morgan consumer confidence rating fell by 0.7 per cent to 117.3 in the past week. The index is comfortably above the average of 114.2 held since 2014, and above the longer term average of 113.0 held since 1990. 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?
Aussie business conditions have lifted for three successive months and business confidence increased, stabilising above its long-term average in September.
Importantly, the underlying employment conditions index continues to strengthen, defying the moderation in other leading indicators of jobs growth, such as the ANZ job ads index. The NAB jobs measure at +11.9 points is the third highest reading since March 2006 and well above its long-term average. In fact, the 12-month moving average of employment conditions are at record highs. Continued hiring, improving job security and wages growth are critical ingredients for Aussie consumers navigating rising cost of living pressures.
Consumer confidence fell last week, but the index remains comfortably above its long-run average. In fact, the four-week average of the index lifted to 117.7 points – the best level in almost two months.
Friday’s better-than-expected retail sales data release served to highlight consumer spending resilience in the face of multiple wealth-related headwinds, including falling home prices and recent Aussie sharemarket weakness – the S&P/ASX200 Index fell by 0.4 per cent last week. And households would’ve become more aware of the upward direction in global interest rates as bond yields surged.
Household budgets are also being stretched by the weaker Aussie dollar (for overseas-sourced goods) and elevated petrol prices. But that isn’t stopping us from spending. The ‘tug-ofwar’ between credit card prudence, savings and spending continues. In August, spending won out with sales at department stores, cafes and restaurants all lifting. And look out for the impact of the iPhone XS launch in the September sales data. So it’s no surprise that the ‘time to buy a household item’ estimate has now risen for three successive weeks.
What do the figures show?National Australia Bank Business Survey
The business confidence index rose to +6.2 points in September from an upwardly-revised 25-month low of +5.2 points (previously +4.4 points) in August. The long-term average is +6.0 points.
The business conditions index rose to a three-month high of +14.8 points in September from a downwardly revised +14.0 points (previously +15.2 points) in August. The long-term average is +5.8 points.
The survey was undertaken from September 21 to 27.
The rolling annual average business conditions index was broadly unchanged at +17.0 points, down from the record high of +17.3 points in June.
Components: the index of trading conditions fell from +18.1 points to +16.9 points; employment rose from +9.5 points to +11.9 points; profitability rose from +13.9 points to +14.4 points; forward orders fell from +4.6 points to +2.1 points; stocks fell from +5.3 points to +0.8 points; exports rose from -1.2 points to 0 points.
Inflationary indicators: The monthly reading of labour costs rose at a 0.9 per cent quarterly rate in September after a 1.3 per cent rise in August. Purchase costs rose at a 0.5 per cent quarterly rate in September after a 1.1 per cent rise in August. Final product prices rose at a 0.4 per cent quarterly rate in September after increasing by0.5 per cent quarterly rate in August. Retail prices fell at a 0.1 per cent quarterly rate in September after a 0.8 per cent rise in August.
Capacity utilisation fell from 82.3 per cent to 82.1 per cent in September, but remains above the long-term average of 81.1 per cent.
The proportion of firms reporting that they did not require credit rose from 58 per cent in August to 78 per cent in September.
NAB reported: “The survey points to ongoing strength in business activity into the latter part of 2018 with profitability, turnover and employment at high levels. That said the survey suggests ongoing meek price pressures despite the robust conditions in the business sector. This is in line with our view of the economy more generally, where we see ongoing above trend growth, but only a gradual increase in price pressures more broadly.”
The ANZ-Roy Morgan consumer confidence rating fell by 0.7 per cent to 117.3 in the past week. The index is comfortably above the average of 114.2 held since 2014, and above the longer term average of 113.0 held since 1990.
Four of the five components of the index decreased last week:
• The estimate of family finances compared with a year ago was down from +12.4 to +10.2;
• The estimate of family finances over the next year was down from +27.2 to +26.4;
• Economic conditions over the next 12 months was down from +8.2 to +8.0;
• Economic conditions over the next 5 years was down from +13.3 to +11.0;
• The measure of whether it was a good time to buy a major household item was up from +29.4 to +30.9.
The measure of inflation expectations fell from 4.4 per cent to 4.3 per cent.
What is the importance of the economic data?
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.
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.
What are the implications for interest rates and investors?
Strong jobs growth is a feature of most OECD economies and Australia is no exception. Record annual job gains were achieved over the year to January (+430,300). Monthly job gains this year average 21,900. And the NAB have confirmed today that solid employment growth will continue. According to the NAB, “the employment index (based on historical patterns) is consistent with jobs growth of over 20,000 per month. This should lead to further declines in the unemployment rate over the remainder of 2018.” But falling labour costs in September suggests that we still have some way to go to reduce spare capacity sufficiently to lift worker’s pay.
Another feature of the September survey is the continued improvement in the mining sector, which is leading conditions and confidence across all industries. According to SEEK, job ads in Mining, Resources and Energy are up by 29 per cent over the year to August. This is great news for Western Australians, in particular. And business conditions are now above-average in Western Australia (+11 points) as the drag from the end of the mining construction boom fades and new iron ore projects commence in the Pilbara.
The ANZ-Roy Morgan consumer confidence gauge has remained above its long-run average for every week this year except one (August 19). Aussies are a resilient bunch, but the monthly reading from Westpac-Melbourne Institute will be on investor’s radar tomorrow.
CommSec expects interest rate stability through to November 2019.
Published by Ryan Felsman, Senior Economist, CommSec
Aussie businesses to continue hiring spreeNAB Business survey; Consumer sentiment