Business conditions boom in May: NAB survey

Latest NAB survey adds to expectations the economy has moved from rebound to expansion, as firms signal an intention to hire and invest.

The Victorian lockdown was not fully reflected in NAB’s latest business survey. Picture: Getty Images

“Booming” business conditions in May have added to expectations the economy has moved from rebound to expansion mode, as firms signalled an ongoing intention to hire and invest.

NAB’s latest survey showed operating conditions hit a record high for the second straight month, with gains spread across the country and industries.

“The strength in activity is evident everywhere,” NAB chief economist Alan Oster said.

The conditions gauge climbed 5pts to 37pts in May, the survey showed.

Corporate confidence eased back in May, with the sentiment index falling 3pts to 20pts, but remained just shy of historical levels.

Both the sentiment and conditions measures are multiples of their long-term averages of below 10pts.

National accounts figures earlier this month showed the national economy is now larger than it was before the Covid-19 recession, while labour force statistics show there are more Australians employed today than pre-crisis.

Mr Oster said “the ongoing strength in conditions is promising, as it suggests the economy has continued to grow after recovering its pre-Covid level” in the March quarter.

“The ongoing strength across all industries reflects those that are still recovering but also other sectors such as construction and manufacturing which have moved into a new growth phase” said Mr Oster.

Businesses said they invested more in May, with the survey measure of reported capital expenditure climbing to a record 24pts – a year after it hit an all-time low of -35pts – pointing to “an ongoing increase in business investment” in the June quarter.

The lift in reported capex followed two successive quarters of very large increases in spending by business on machinery and equipment, supported by federal incentives including the instant expensing scheme.

As the number of job ads hit 12-year highs in May, the survey’s employment index also lifted to a record, pointing to further “healthy labour demand – which should see employment continuing to lift over coming months”, the report said.

The NAB report said that as the economy “enters a phase of elevated growth following the better than expected rebound, business investment will be an important driver of growth in both activity and productivity”.

“It is promising that we have seen a material lift in reported capex that has now been sustained over the last few months but we will continue to watch the survey closely for any signs of the impact of government support waning.”