Business confidence hits 31-month high

Value of Aussie homes hits record highs
NAB Business survey; Property price indexes

Business survey: The NAB business confidence index rose from +3.2 points to a 31-month high of +12.4 points in November (The long-term average is +5 points). The business conditions index lifted from +2.0 points to 20-month highs of +8.8 points. (The long-term average is +5.2 points).

Home prices: The Bureau of Statistics reports that Australian home prices rose by 0.8 per cent in the September quarter to stand 4.5 per cent higher over the year.

Record home values: The total value of Australia’s 10.56 million dwellings was a record $7,283.3 billion in the September quarter with the average dwelling price at $689,500.

The business survey has broad implications for investors and the economy. Home price data is important for retailers, especially those focussed on consumer durables.

What does it all mean?

• The healing process continues. Businesses are more confident, matching similar improvement in consumer sentiment. And both the current readings of business confidence and conditions are above longer-term averages. Since the survey was completed almost two weeks ago, there has been further easing in social distancing requirements and opening up of state borders. And overseas there have been further positive news on vaccines even if virus case numbers have lifted across the US and Europe.

• The reading on employment in the NAB survey is still soft. But businesses need to get on their feet first, then gradually lift working hours, before putting workers back at their posts. But business conditions are certainly moving in the right direction.

• The data from the Bureau of Statistics on home prices confirms other – and later – data including the CoreLogic home value index. Super-low interest rates and an improving job market should keep home prices ticking higher. The value of Aussie homes has hit fresh record highs, giving consumers the confidence to borrow and spend.

• There are just over 10.62 million homes in Australia and around 2.44 people per home. The number of homes is growing at a slightly higher annual rate than Australia’s population. The interest point over the next year will be whether the average household size increases or decreases. Younger Aussies may take advantage of first home owner grants and low interest rates and build homes. But other families may opt for greater co-habitation.

What do the figures show?

National Australia Bank Business Survey – November

• The NAB business confidence index rose from +3.2 points to a 31-month high of +12.4 points in November (The long-term average is +5 points). The business conditions index lifted from +2.0 points to 20-month highs of +8.8 points. (The long-term average is +5.2 points).

• The rolling annual average business confidence index rose from -13.6 points to -12.2 points in November. The rolling annual average business conditions index edged higher from -7.1 points to -6.4 points.

• The survey was conducted in the period November 17-27, 2020 across 550 firms.

• Key Components: The index of trading conditions rose from +6.9 points to +16.9 points; employment improved from ‑5.4 points to -4.6 points; profitability rose from +4.8 points to +14.5 points; forward orders rose from -3.3 points to 6.0 points; stocks fell from -1.1 points to -7.4 points; exporter’s sales increased from ‑18.1 points to ‑15.9 points.

• Inflationary indicators: The monthly reading of labour costs rose at a 0.1 per cent quarterly rate in November after rising 0.1 per cent in October. Purchase costs were also up 0.4 per cent (October: +0.4 per cent). Final product prices fell at a 0.1 per cent quarterly rate (October: -0.1 per cent). Retail prices were up 0.5 per cent (October: +0.2 per cent).

• Capacity utilisation rose from 77.9 per cent to 79.3 per cent (81 per cent is the long-term average).

• The proportion of firms reporting that they did not require credit eased from 55 per cent to near 47 per cent.

• NAB noted, “Conditions rose in all industries, except wholesale. Mining, construction and retail saw the largest gains in the month. Overall, all industries are now in positive territory, with the exception of construction and recreation & personal services, which saw a neutral index reading. Retail continues to be the standout with very strong conditions at +28 index points.

• Confidence rose in all industries except construction and mining – with the largest gains concentrated in retail and wholesale. In seasonally adjusted terms, confidence is now well into positive territory across all industries, except for mining which is a little softer at +3 index points.”

Residential property prices – June quarter

• The Australian Bureau of Statistics (ABS) has released its Residential Property Price indexes for the September quarter.

• The Bureau of Statistics reports that Australian home prices rose by 0.8 per cent in the September quarter to stand 4.5 per cent higher over the year. The total value of Australia’s 10.56 million dwellings was a record $7,283.3 billion with the average dwelling price at $689,500.

• In the September quarter, capital city residential property price indexes were: Sydney (up 1.0 per cent); Melbourne (down 0.3 per cent); Brisbane (up 1.5 per cent); Adelaide (up 1.6 per cent); Perth (up 1.4 per cent); Hobart (up 1.2 per cent); Darwin (up 0.8 per cent); Canberra (up 0.9 per cent).

• Over the year to September, residential property prices were: Sydney (up 5.4 per cent); Melbourne (up 4.7 per cent); Brisbane (up 3.1 per cent); Adelaide (up 2.6 per cent); Perth (up 2.4 per cent); Hobart (up 6.0 per cent); Darwin (down 0.7 per cent); Canberra (up 5.0 per cent).

• The total value of residential dwellings in Australia rose $87.8b to $7,283.3b this quarter. The mean price of residential dwellings rose $5,400 to $689,500. The number of residential dwellings rose by 44,000 to 10,562,800.

• CommSec estimates that the number of people per home eased from around 2.443 in the June quarter to 2.439 in the September quarter.

• The mean value of all dwellings in in the September quarter: NSW ($888,900, up 2.9 per cent on the year); Victoria ($738,600, up 3.2 per cent); Queensland ($529,800, up 3.1 per cent); South Australia $474,700, up 4.8 per cent); Western Australia ($507,200, up 0.7 per cent); Tasmania ($462,800, up 9.2 per cent); Northern Territory ($425,200, down 3.2 per cent); and the ACT ($721,000, up 7.0 per cent).

• Over the past year the number of homes grew by 168.900 or 1.6 per cent, the slowest annual gain in six years.

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 Australian Bureau of Statistics (ABS) provides quarterly data on residential prices. The figures provide further perspectives on the state of the housing purchase sector.

What are the implications for investors?

• The Aussie economy is firmly in recovery mode. Now we just need to keep a focus on jobs to see whether the recovery is generating the sort of growth that authorities are looking for.

• Will housing affordability be a key issue again over 2021 – home values are lifting almost everywhere.

• Keep an eye of inflation. Purchase costs have been rising and retail prices kicked 0.5 per cent higher in the latest month.

Published by Craig James, Chief Economist, CommSec