Good times for business

Better conditions tempered by lack of confidence

A CLOSELY watched measure of Australian business conditions rose in March, led by gains in sales and profitability, but confidence weakened further to remain below average.

NAB’s index of business conditions, released yesterday, rose three points to seven in February.

The survey’s volatile measure of business confidence – which measures expectations for conditions going forward – declined two points to zero, having been much softer than in recent months. Close Change

Other forward-looking indicators showed some improvement but remained at or below average.

Forward orders, the most reliable indicator of domestic demand, rose one point to minus one, while the capacity utilisation rate nudged up to 81 per cent.

The reading on employment rose 2 points to +7.

The labour market has been one of the strongest sectors of an otherwise mixed economy, with the unemployment rate declining to an eight-year trough of 4.9 per cent.

“We will continue to watch the survey closely over coming months,” said NAB chief economist Alan Oster. “With activity having already slowed, it is important to assess whether this is temporary or has persisted into 2019 – the survey suggests this may be the case at least for Q1.

“For now the survey suggests labour market conditions have remained healthy but we are also watching this closely given it may well be a lagging indicator.”

Mr Ostler said that based on past relationships between the survey and jobs data, the level suggests growth of about 20,000 jobs a month.

“While this is lower than the rates seen in early to mid-2018, this should be enough to see the labour market hold onto recent gains in the unemployment rate for now,” he said.

Steep falls in home prices and a tightening of lending conditions by banks have combined with subdued wage growth and inflation to darken the outlook for the economy, which slowed sharply in the second half of 2018.