Record business conditions; Still spending
Retail trade; NAB Business survey; Used cars, Petrol market

Business confidence and conditions: The NAB business confidence hit a record high of +26 index points in April with business conditions at a record high of +32 index points.

Retail trade: Retail trade rose 1.3 per cent in March to be up 2.2 per cent on a year ago. Real (inflation-adjusted) retail trade fell by 0.5 per cent in the March quarter after rising 2.4 per cent in the prior quarter.

Skilled internet job vacancies: In seasonally adjusted terms, skilled job advertisements increased by 3.3 per cent (or 7,800 job advertisements) in April to stand at 243,500 – the highest level since October 2008.

Fuel prices: Last week the national average price of unleaded petrol rose by 3 cents a litre to 141.2 cents per litre (c/l), according to the Australian Institute of Petroleum.

Used car prices: Used vehicle prices rose by 1.2 per cent last week on lower supply.

Retail trade data is important for consumer-focussed companies. The business survey has broad implications for investors and the economy. Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Used car price data is useful in gauging activity levels in the motor vehicle market.

What does it all mean?

• Economic boom or nirvana? Inflation is still under control, so hopefully it is more the latter rather than former. Business labour costs, purchase costs and retail prices all grew at a slower rate in April according to the latest NAB survey. But it is a situation worth watching.

• In the 24-year history of the NAB survey, business conditions has never been higher and neither has business confidence. Clearly, the amount of fiscal and monetary support has also never been bigger.

• Job vacancies are at the highest levels in 12½ years. But are the necessary workers available in the economy? The same concern about skill mismatches with foreign borders closed exists in other economies – notably in the US after the much lower than expected lift in Friday’s job report.

What do you need to know?

National Australia Bank Business Survey – April

• The NAB business confidence hit a record high of +26 index points in April with business conditions at a record high of +32 index points. Long-term averages are around 5 index points. All key components hit record highs including employment. The survey was conducted in the period April 20-30, 2021, covering over 400 firms.

• The proportion of firms reporting that they did not require credit fell from near 60 per cent to around 55 per cent.

• NAB economists noted: “Forward orders reset last month’s record high – and point to a growing pipeline of work. Capacity utilisation also very high, and implies alongside the strength in activity, that firms may need to continue to hire workers and undertake investment in new projects to continue to grow.

• Labour and input costs growth slowed marginally in the month, while inflation in final products prices edged higher – though retail price inflation eased slightly.”

Retail trade – March 2021

• Retail trade rose by 1.3 per cent in March to be up 2.2 per cent on a year ago.

The Australian Bureau of Statistics (ABS) wrote:

• “Victoria (3.5 per cent) and Western Australia (5.5 per cent) led rises at the state and territory level, following falls in February associated with local coronavirus lockdowns. Queensland (-0.5 per cent), which saw a short lockdown at the end of March, partially offset these increases.”

• By industry, cafes, restaurant and takeaway foods services (4.8 per cent), department stores (8.5 per cent), and clothing, footwear and personal accessory retailing (5.4 per cent) led the rises, driven by growth in Victoria and Western Australia especially. A fall in food retailing (-0.9 per cent) partially offset these rises, with falls in both supermarkets and liquor retailing.”

Retail trade – March quarter 2021

• In real (inflation-adjusted) terms, retail trade fell by 0.5 per cent in the March quarter after rising by 2.4 per cent in the December quarter. Retail trade volumes were up by 4.7 per cent on a year ago.

• Prices across retailers rose by 0.4 per cent in the March quarter after rising 0.1 per cent in the December quarter. Clothing prices rose by 2.3 per cent in the quarter after falling 1.7 per cent in the December quarter. Annual growth of retail prices fell from 3.6 per cent to 2.5 per cent.

• The ABS noted:

“The quarterly volume fall was driven by households spending patterns gradually returning to those seen before COVID-19. Food retailing (-2.7 per cent) led the falls while household goods also fell (-1.6 per cent). The falls were partially offset by a rise in cafes, restaurants and takeaways (5.8 per cent), as eating out increased, while functions and events continued to return.

Across the other industries, clothing, footwear and personal accessory retailing (-0.7 per cent) fell, while there were rises for other retailing (0.4 per cent) and department stores (0.2 per cent).

State falls were led by New South Wales (-1.1 per cent), Queensland (-1.2 per cent) and Western Australia (-1.8 per cent), with volumes in Queensland and Western Australia in particular, impacted by lockdown periods within the quarter. Victoria (1.3 per cent) was the only state to rise, following restricted trade in the December quarter 2020.”

Weekly petrol prices

• Last week the national average price of unleaded petrol rose by 3.0 cents a litre to 141.2 cents per litre (c/l) according to the Australian Institute of Petroleum. It was the first rise in four weeks. The national average unleaded Terminal Gate Price (TGP) was up by 0.6 cents to a 7-week high of 126.3 cents a litre.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 133.6c/l; Melbourne 143.8c/l; Brisbane 158.7c/l; Adelaide 130.3c/l; Perth 128.8c/l; Hobart 144.0c/l; Darwin 139.8c/l; and Canberra 140.1c/l.

• Last week the key Singapore gasoline price fell by US60 cents or 0.8 per cent to US$76.30 a barrel. In Australian dollar terms, the Singapore gasoline price fell by 78 cents or 0.3 per cent to $98.11 a barrel or 61.70 cents a litre.

Weekly used vehicle market – May 10

• Datium Insights have reported the following results for the week to May 3:

“Prices were up last week (+1.2 per cent) with SUV’s (+4 per cent) leading the increases

Supply was down (-9.3 per cent), continuing its volatility

Clearance rates were largely flat (-0.9 per cent)

Prices for the top 15 traded vehicles were mostly down with the Hyundai iLoad (-8.2 per cent) and Ford Ranger (-3 per cent) seeing the largest decreases

Stock still remains considerably low”

What is the importance of the economic data?

• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

• 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.

• Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. Datium Insights and Moody’s Analytics also issue a monthly reading on used vehicle prices. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

What are the implications for investors?

• Consumers continue to spend freely, supported by record low interest rates, higher employment, improved job security and rising prices for equities and homes. One obstacle to increased spending is ongoing high petrol prices. Filling up the car with petrol is the single biggest weekly purchase for most households.

• Businesses are confident and busy – not a bad combination. All the key components of business activity stand at record highs including profitability and employment. The latest survey results are broadly supportive of the sharemarket with higher earnings justifying higher share prices.

Published by Craig James, Chief Economist, CommSec