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NAB survey reveals mixed signals

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2024-07-09

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Now, this will confuse economists, analysts, and the members of the Reserve Bank second-guessers in the business media. According to the latest National Australia Bank survey for June, business conditions fell (no surprise), but business confidence jumped to 18-month highs (a big surprise).

The two don’t really chime, do they? While conditions fell to a level below their long-term survey trend, the improvement in confidence was almost across the board in 7 out of 8 industries in the survey each month.

The NAB said business conditions fell 2 points to +4 index points and "are now clearly below the long-run average."

The fall was driven by declines in employment (down 6 points to zero index points) and profitability indices (down 1 point to +2 index points), while trading conditions were broadly flat at +10 index points (unrounded).

“Business conditions continued their now long-running easing trend in June,” according to the NAB's Head of Australian Economics, Gareth Spence. “They are now below average, reflecting the slowing in the economy through late 2023 and early 2024,” he wrote on Tuesday.

“Of note is the sharp decline in the employment index in the month,” said Mr. Spence. “While it's only one month’s read, the employment index is now below its long-run average and may be signaling that the broader slowing in the economy is flowing through more strongly to labor demand.”

But confidence rose 6 points to +4 index points, driven by the increase in 7 out of 8 industries.

The increase was led by improvements in manufacturing and wholesale, while the remaining industries saw 6 points or more increases, except for construction which declined 3 points.

“Business confidence rose relatively sharply in the month and is now back into positive territory and at its highest level since early 2023,” said Mr. Spence.

However, the survey also pointed to other activity measures for the month which the NAB said were mixed, with forward orders and capital investment both weakening.

A key measure, capacity utilization, edged up and remains well above average at 83.5%, according to the NAB.

“Forward orders remain well into negative territory and have been there for some time,” said Mr. Spence. “The key driver of weak forward orders over recent months has been the retail and wholesale sectors, though manufacturing weakened further in the month and is also now very weak.”

Labor cost growth eased to 1.8% in quarterly equivalent terms (from 2.3% in May) and purchase cost growth also eased to 1.3% (from 1.7%). Product price growth fell to 0.7% overall (from 1.1%). Retail price growth was broadly stable at 1.5%, while recreation and personal services prices fell to 0.7% (from 1.1%).

“Overall, our take on the survey is that it continues to signal another soft quarter in Q2,” said Mr. Spence. “But also that capacity utilization is still high, with demand and supply yet to fully normalize. Price pressures continue to ease in a trend sense, though the data certainly remains bumpy.”

Looking at state activity, the NAB said the survey showed conditions eased sharply in Tasmania (down 20 points), declined in NSW and SA (both down 7 points), and edged down in WA (down 2 points) and Vic (down 1 point). Qld (up 6 points) was the only state to increase in the month.

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