Business confidence on the wane: NAB survey

A two-year surge in business conditions is ending, with companies lowering their estimates for profits, sales and employment.

A two-year surge in business conditions is ending with companies downgrading their estimates for profits, sales and employment and losing confidence in the outlook.

National Australia Bank’s monthly business survey shows that for the first time since 2016, business confidence and the flow of new orders has dropped below average.

NAB chief economist Alan Oster says business conditions reached a peak in April this year, when the number of companies saying profits, sales and employment were rising exceeded those saying they were weakening by a record 21 per cent.

But the net balance reporting improved business conditions has fallen nearly every month since then, dropping to 11 per cent in November. The number of businesses confident that the outlook will improve exceeds those who are pessimistic by only 3 per cent in the latest survey.

“While the business sector remains relatively healthy, this trend suggests the business sector has lost some momentum since late 2017 and early 2018,” Mr Oster said.

Businesses say weak consumer demand was the main reason for the softening in the business outlook. NAB investigated the effect of falling house prices but found that 75 per cent of businesses thought it had no effect while only 3 per cent detected a “moderate” negative effect on consumer demand.

The Australian Bureau of Statistics reported yesterday the downturn in the property market was gathering pace with prices dipping 1.9 per cent in Sydney in the September quarter and 2.6 per cent in Melbourne. Prices also fell 0.6 per cent in Perth and 0.9 per cent in Darwin, but rose in Brisbane, Adelaide, Canberra and Hobart.

Mr Oster said that while falling asset prices can have a significant economic effect, it was not yet the case in the Australian economy. “The key message seems to be that, so far in a good performing economy the falls in house prices are not yet sufficient to cause serious grief across the broader economy,” he added.

Other constraints on the outlook mentioned by companies included the difficulty of finding skilled staff and global economic conditions, which were both cited by the resources sector, while firms in the personal and recreation industry mentioned high wage costs.

Mr Oster said the level of new orders was the best indicator of the health of the economy. The number of firms reporting an increase in orders outnumbered those with a fall by 11 per cent in February, but this has been falling every month with the numbers evenly split in the latest survey.

He said it was likely that growth in employment would slow, although it was still possible that the jobless rate would continue falling to about 4.75 per cent before steadying.