Business conditions hit record high; Payrolls lift

Consumer confidence hits 17-month high
NAB Business survey; Weekly consumer confidence; Weekly payroll jobs & wages

Business confidence and conditions: The NAB business confidence index fell from an 11-year high of +17.8 points in February to +15.5 points in March (long-term average is +5.2 points). But the business conditions index lifted to a record high of +25.2 points in March, up from +17.0 points in February (long-term average is +5.4 points). Trading, profitability and employment conditions all hit record highs.

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 5.9 per cent – the most in 43 weeks – to a 17-month high of 114.1 (long-run average since 1990 is 112.6). And confidence is up by 74.7 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

Survey of payrolls & wages: The Bureau of Statistics (ABS) reported that national payroll jobs rose by 0.1 per cent, but wages paid fell 0.4 per cent over the fortnight to March 27, 2021. Payroll jobs were 1.0 per cent above levels at the start of the pandemic (since Australia recorded its 100th confirmed case of Covid-19 on March 14, 2020). And wages were 2.1 per cent higher over the period.

The business survey has broad implications for investors and the economy. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The payroll and wage data helps government with decisions on assistance measures for households and businesses.

What does it all mean?

• The latest batch of Aussie economic data is encouraging. In fact, surveys of both consumers and businesses suggest that the economic recovery is gathering momentum, despite the tapering of government stimulus. Those surveyed appeared to shrug-off concerns about the delayed coronavirus vaccine rollout and JobKeeper wage subsidy expiry. While both remain potential impediments to Australia’s rapid bounce-back, consumer sentiment is the strongest since September 2019, while business conditions were at historic high levels in March.

• Business confidence eased a little in March from 11-year highs in February, but conditions jumped to the highest level since records began in March 1997. Measures of employment, profits and trading conditions were also at all-time highs. Forward orders also hit record highs with capacity utilisation at a 32-month high of 82.3 per cent – above its long-run average. Overall, the NAB survey bodes well for a sustained upturn in the business cycle after years of sluggish business investment.

• Consumer sentiment, as measured by ANZ and Roy Morgan, rose 5.9 per cent last week – the most in 43 weeks – to a 17-month high. The announcement of the Trans-Tasman travel bubble has seemingly lifted consumer spirits with glorious Queenstown now in reach for Aussie skiers keen to venture to New Zealand’s Southern Alps in the winter. ANZ economists also reported that the ending of Brisbane’s snap pre-Easter holiday lockdown also boosted morale.

• Consumer views on ‘current financial conditions’ jumped by 8.3 per cent to a 12-month high of 5.6 points in the past week. And consumer views on ‘current economic conditions’ surged 7.1 per cent last week to a 19½-month high of 6.1 points. Australia’s success in supressing the virus, lower mortgage repayments, strong jobs growth, elevated savings and rising asset prices, have all boosted consumer optimism.

• The recovery in Australia’s labour market continued at the back-end of March ahead of the JobKeeper expiry. Data from the Bureau of Statistics (ABS) and the Australian Taxation Office (ATO) show that national payroll jobs rose by 0.1 per cent, but total wages fell by 0.4 per cent over the fortnight to March 27. Payroll jobs rose most in the Covid-19 sensitive Accommodation and food services industry (+1.7 per cent). And jobs in tourism-focused Queensland lifted 0.3 per cent ahead of Brisbane’s ‘mini-lockdown’.

What do you need to know?

National Australia Bank Business Survey – March

• The NAB business confidence index fell from an 11-year high of +17.8 points in February to +15.5 points in March (long-term average is +5.2 points). But the business conditions index lifted to a record high of +25.2 points in March, up from +17.0 points in February (long-term average is +5.4 points).

• The rolling annual average business confidence index rose from -8.0 points to -1.1 points in March. The rolling annual average business conditions index lifted from -2.5 points to +1.6 points.

• The survey was conducted in the period March 19 to March 31, 2021, covering over 400 firms.

• Key Components: The index of trading conditions rose from +22.6 points to a record +34.8 points; employment lifted from +8.9 points to a record +16.2 points; profitability climbed from +18.0 points to a record +26.3 points; forward orders increased from +10.4 points to a record +16.5 points; stocks rose from +2.3 points to a 16-year high of +10.5 points; exporter sales improved from ‑7.2 points to ‑0.4 points.

• Inflationary indicators: The monthly reading of labour costs rose at a 1.9 per cent quarterly rate in March after rising 1.1 per cent in February. Purchase costs were up 1.8 per cent (February: +0.7 per cent). Final product prices were up 0.9 per cent (February: +0.3 per cent). Retail prices were up 1.0 per cent (February: +1.0 per cent).

• Capacity utilisation rose from 81.8 per cent to a 32-month high of 82.3 per cent (note that 81.0 per cent is the long-term average).

• The proportion of firms reporting that they did not require credit lifted from near 50 per cent to around 60 per cent.

• NAB economists noted: “Business conditions rose to a record high in March, driven by strong increases in all sub components – which are all now also all at record highs. The strength in conditions is evident across all states and industries. Forward orders – which also rose to record levels – points to ongoing strength in activity with the pipeline of work rising further. While business confidence edged lower in the month, it remains at a high level, suggesting that firms themselves are optimistic that the strength in activity will continue. Alongside the strength in activity, capacity utilisation rose further in the month and is now well above average. Encouragingly, capacity utilisation is at or above pre-COVID levels in all industries except for rec & personal services – which unsurprisingly is still impacted by pandemic related restrictions. Taken together, the strength in conditions alongside high levels of capacity utilisation, point to an economy that is continuing to grow at a relatively healthy rate as we transition through the wind-up of the JobKeeper program and beyond.”

Consumer sentiment – Week ended April 11

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 5.9 per cent – the most in 43 weeks – to a 17-month high of 114.1 (long-run average since 1990 is 112.6). And confidence is up by 74.7 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

Published by Ryan Felsman, Senior Economist, CommSec