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Business confidence hits 11-year high

Skilled job vacancies reach 9-year high
NAB Business survey; Skilled job vacancies

Business confidence and conditions: The NAB business confidence index rose from +12.0 points in January to an 11-year high of +16.4 points in February (long-term average is +5.1 points). And the business conditions index lifted to a 30-month high of +15.4 points from +9.1 points (long-term average is +5.3 points).

Skilled job vacancies: In seasonally adjusted terms, preliminary job vacancies increased by 7.0 per cent (or 12,600 job advertisements) – the 10th successive increase – in February to stand at a 9-year high of 191,994 available positions. Job ads are up 24.8 per cent (or 38,100 advertisements) over the year.

The business survey has broad implications for investors and the economy. Skilled vacancies highlights the strength of the job market and has implications for placement agencies and retailers.

What does it all mean?

• The post-pandemic economic recovery continues with the easing of Covid-19 government restrictions and the roll-out of vaccines boosting business morale. In fact, Aussie business confidence hit 11-year highs in February with conditions at the best level in 30 months.

• Importantly, employment, trading and profitability all lifted in February. Profitability was the highest in 2½ years with forward orders hitting 3-year highs in the month. And capacity utilisation rose to the best level in 18 months. And on business investment, capital spending jumped to +8 points – its highest level since August 2019. The overall broad-based improvement in business conditions bodes well for both hiring and capital spending intentions – both crucial in the recovery phase.

• Of course, confidence and conditions vary across regions and industries. According to NAB economists, conditions are the strongest in mining and retail, but weakest in construction. And business confidence rose across all industries except retail during February. Sentiment in the recreational & personal services and retail continue to lag the other industries. By state, confidence is highest in WA and lowest in Tasmania. And conditions are strongest in Western Australia with NSW, Victoria and Tasmania lagging.

• The NAB survey is also signalling continued above-average jobs growth. And today’s release of the National Skills Commission preliminary skilled job vacancy report reinforces this view. According to the Commission, there are currently 191,994 advertised positions across Australia – the most since March 2012!

• Encouragingly, recruitment activity jumped 9.2 per cent in NSW in February, but the annual growth in vacancies is strongest in Tasmania (up 52.4 per cent), followed by the Northern Territory (up 47.8 per cent) and South Australia (up 46.0 per cent).

What do you need to know?

National Australia Bank Business Survey – February

• The NAB business confidence index rose from +12.0 points in January to an 11-year high of +16.4 points in February (long-term average is +5.1 points). And the business conditions index lifted to a 30-month high of +15.4 points in February, up from +9.1 points in January (long-term average is +5.3 points).

• The rolling annual average business confidence index rose from -10.0 points to -8.1 points in February. The rolling annual average business conditions index lifted from -4.1 points to -2.5 points.

• The survey was conducted in the period February 18 to March 1, 2021, covering over 530 firms.

• Key Components: The index of trading conditions rose from +13.0 points to +21.1 points; employment lifted from +3.3 points to +8.0 points; profitability climbed from +13.3 points to a 32-month high of +17.2 points; forward orders increased from +2.6 points to a 3-year high of +8.3 points; stocks rose from +1.5 points to +1.6 points; exporter sales improved from ‑14.7 points to ‑7.1 points.

• Inflationary indicators: The monthly reading of labour costs rose at a 1.0 per cent quarterly rate in February after rising 0.7 per cent in January. Purchase costs were up 0.6 per cent (December: +0.7 per cent). Final product prices were up 0.2 per cent (December: +0.2 per cent). Retail prices were up 1.0 per cent (December: +0.7 per cent).

• Capacity utilisation rose from 81.1 per cent to an 18-month high of 81.8 per cent (note that 81.0 per cent is the long-term average).

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

• NAB economists noted: “The survey results were strong in February. Business confidence rose further in February to reach 16 index points, its highest level since early 2010, with all states and industries reporting gains, except for retail. Business conditions bounced to return to around multi-year highs at 15 index points, after slipping in the month prior, with trading, profitability and employment conditions all marking solid improvements. Conditions remain very strong in retail, wholesale, mining and professional services, while construction, personal services and transport conditions continue to lag. Elsewhere, capacity utilisation and capex continue to rise and have now exceeded pre-virus levels and their long-run averages – an encouraging sign that the turnaround in business conditions and steady improvement in confidence is translating to higher capacity utilisation and increased investment. The survey continues to point to a robust recovery in the business sector, despite some tapering of government support beginning in late 2020. This is a positive sign for the economy, where ongoing strength in the business and household sector is needed to sustain the recovery.”

Preliminary skilled internet job vacancies – February

• In seasonally adjusted terms, preliminary skilled internet job vacancies increased by 7.0 per cent (or 12,600 job advertisements) – the 10th successive increase – in February to stand at a 9-year high of 191,994 available positions. Job ads are up 24.8 per cent (or 38,100 advertisements) over the year.

• All states and territories recorded an increase in job advertisements in February: NSW (up 9.2 per cent); Victoria (up 6.1 per cent); Queensland (up 7.2 per cent); South Australia (up 10.5 per cent); Western Australia (up 0.7 per cent); Tasmania (up 13.3 per cent); Northern Territory (up 11.8 per cent); ACT (up 10.4 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 National Skills Commission releases a monthly Internet Vacancy Index. The index is based on a count of online job advertisements newly lodged on three main job boards (SEEK, CareerOne and Australian JobSearch) during the month. The index is the only publicly available source of detailed data for online vacancies, including around 350 occupations (at all skill levels), as well as for all states/territories and 37 regions.

What are the implications for investors?

• The economic recovery is well underway, but with the JobKeeper wage subsidy expiry imminent and international borders still closed, targeted government stimulus is still required. Commonwealth Bank Group economists estimate that up to 110,000 jobs may be lost from the end of March with the travel-sensitive sectors’ transport, food & accommodation and arts & recreation most likely to be impacted. So it was no surprise that Prime Minister Scott Morrison today flagged that he and Federal Treasurer Josh Frydenberg will unveil additional targeted support measures for the tourism, travel and aviation sectors later this week. He also announced a further $1.2 billion in wage subsidies (‘JobTrainer’) for apprentices.

Published by Ryan Felsman, Senior Economist, CommSec