Business survey; Consumer confidence
- Business confidence: The NAB business confidence index rose from 20-month lows of +5.6 points in June to +6.6 points in July. The long-term average is +6.0 points.
- Business conditions: The NAB business conditions index eased from a downwardly-revised +14.1 points (previously +15.0 points) in June to +12.4 points in July. The long-term average is +5.7 points.
- Strong jobs market: The 12-month moving average of the NAB employment index rose to a record high +9.58 points in July, up from +9.3 points in June. The long-term average is +1.7 points.
- Input costs increase: Purchase costs rose at a 0.9 per cent quarterly rate in July after a 0.7 per cent rise in June – the equal highest level in 2½ years.
¾ Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 118.2, but it is well above the average of 114.1 since 2014 and average of 113.0 since 1990. The measure of whether it was a good time to buy a major household item was down from 134.6 to 131.3 – the lowest level in 17 weeks.
The business survey has broad implications for investors and the economy. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
- Aussie businesses are in good health. Business conditions remain elevated, despite the NAB index easing from record high levels in recent months. The jobs market is robust. The NAB employment index reached record highs in 12-month moving average terms, following a strong rebound in July.
- Business profitability, however, fell to the lowest level since November 2016. We will continue to monitor this development as the August corporate reporting season continues. But rising input costs may be starting to eat away at earnings. In July, purchase costs increased at the equal strongest growth rate in 2½ years. Prices rose by the most in 18 months and labour costs were the strongest in five months.
- Consumer confidence ebbs and flows from week-to-week. Sentiment has edged lower over the past month with volatility in financial and currency markets exacerbated by rising geo-political risks, especially in Turkey. Given the risk-off environment, the Aussie dollar has fallen by 1.8 per cent against the greenback so far in August, weighing on sentiment. Overseas sourced goods, together with international travel have become more expensive. Perhaps that’s why the desire to buy a major household item has fallen.
What do the figures show?
National Australia Bank Business Survey
- The business confidence index rose from 20-month lows of +5.6 points in June to +6.6 points in July. The long-term average is +6.0 points.
- The business conditions index eased from a downwardly-revised +14.1 points (previously +15.0 points) in June to +12.4 points in July. The long-term average is +5.7 points.
- The survey was undertaken from July 25 to 31.
- The rolling annual average business conditions index edged lower to +17.1 points in July from a record high +17.3 points in June.
- Components: the index of trading conditions fell from +21.2 points to +16.8 points; employment rose from +5.3 points to +10.3 points; profitability fell from +15.5 points to +9.7 points; forward orders fell from +2.8 points to +1.4 points.
- Inflationary indicators: The monthly reading of labour costs rose at a 1.1 per cent quarterly rate in July after a 0.7 per cent rise in June. Purchase costs rose at a 0.9 per cent quarterly rate in July after a 0.7 per cent rise in June. Final product prices rose at a 0.6 per cent quarterly rate in July after increasing by 0.4 per cent quarterly rate in June. Retail prices rose at a 0.5 per cent quarterly rate in July after being unchanged in June.
- Capacity utilisation fell to 82.2 per cent in July from 82.4 per cent in June, but above the long-term average of 81.1.
- The proportion of firms reporting that they did not require credit rose to 70 per cent in July, down from 82 per cent in June.
Consumer Sentiment
- The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 118.2, but it is well above the average of 114.1 since 2014 and average of 113.0 since 1990.
- Four out of five components of the index decreased last week:
- The estimate of family finances compared with a year ago was down from 109.9 to 108.8;
- The estimate of family finances over the next year was up from 126.2 to 129.5;
- Economic conditions over the next 12 months was down from 109.0 to 107.2;
- Economic conditions over the next 5 years was down from 114.6 to 114.2;
- The measure of whether it was a good time to buy a major household item was down from 134.6 to 131.3 – the lowest level in 17 weeks.
- The measure of inflation expectations eased from 4.3 per cent to 4.2 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 ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
- Aussie business conditions are just below record highs, but still well above long-term average levels. Confidence edged higher in July, but also remains above long-term averages.
- The labour market continues to be a bright spot for the Aussie economy. If current momentum is maintained, the NAB expects “…employment growth of around 23,000 per month, which should see the unemployment rate continue to edge lower over the next six months. Assuming a constant participation rate and steady population growth, this is enough to reduce the unemployment rate by around 0.1ppts a month.” Job creation is particularly strong in the mining, finance, business and property services and construction industries.
- Business profitability has softened. Rising purchasing and labour costs, combined with prices suggest that business inflation may be building in some sectors of the economy as capacity constraints emerge. Tomorrow’s June quarter Wage Price Index will shed some light on the wages situation, which is critical to the interest rate outlook.
- Consumer confidence has eased, but remains above long-term average levels. More broadly, global e-commerce growth and competition remains significant, keeping goods prices in check, supporting retail spending. But the outlook for household consumption remains the wildcard for the domestic economic outlook.
- Still-high petrol prices, falling home prices, elevated mortgage debt, modest wages growth and the weaker Aussie dollar are negatives. And much has been written about tightening lending standards. On the flip side, tax cuts should provide a modest income boost to some households and the job market remains firm. And the Aussie sharemarket is currently straddling decade highs – a key positive for the wealth effect.
- CommSec expects official interest rates to be stable until 2019.