Business conditions hit record high in March, says NAB survey

Record corporate operating conditions suggest a smooth transition from emergency stimulus to private sector-led growth is underway.

Retail therapy … Nicola and Orlando Reindorf at their recently reopened fashion outlet The Standard Store in Sydney’s Surry Hills. Picture: Jane Dempster

Economists are optimistic that a smooth transition from emer­gency government COVID-19 support to a private sector-led ­recovery is well under way after corporate Australia reported the best operating conditions on record in March ahead of the end of the ­JobKeeper program.

NAB’s business conditions index rose eight points to 25 points — a new high in the monthly survey. Measures tracking firms’ views on profitability, employment and trading conditions all also surged to record levels.

The confidence gauge, however, dipped three points to 15.

NAB chief economist Alan Oster described it overall as a “very solid survey result” and noted that confidence remained “well above its long-run average”, despite the monthly drop.

“Businesses are telling us activity continues to increase at a very healthy rate as we move past the rebound phase,” Mr Oster said. “Overall, the recovery over the last year has been much more rapid than anyone could have forecast.”

But JP Morgan economist Tom Kennedy said while the large improvement in conditions in March was a positive sign, the “incredible bounce-back” from the depths of the COVID-19 recession had distorted comparisons with pre-pandemic survey readings.

“You shouldn’t think because we are getting record levels in business conditions we should see record levels of economic activity in the first quarter — that relationship has broken down a bit,” Mr Kennedy cautioned.

Treasury has estimated up to 150,000 jobs may have been lost following the end of JobKeeper late last month. However, the NAB survey showed firms’ employment intentions remained well above average, suggesting continued employment growth will offset, at least partly, any job shedding.

Elevated confidence levels, “in combination with a very strong read for forward orders, points to ongoing strength in activity, which hopefully sees conditions remain elevated” into April and beyond, Mr Oster said.

ANZ senior economist Catherine Birch said the survey confirmed her view “the impact of the end of JobKeeper on the economic recovery will be short and limited”.

Ms Birch said the survey also gave her “more confidence in a strengthening business investment outlook”.

 

Mining was the only industry to show a lift in confidence. By state, sentiment improved in Victoria and Western Australia, but eased elsewhere, the survey showed.

By industry, manufacturing and construction recorded the largest gains in operating conditions in March. The NAB survey showed that, in trend terms, overall conditions remained most favourable in the retail, finance, business and property services, and wholesale sectors.

The NAB report noted that the building industry had lagged the broader economic recovery, but there were “signs of a significant pick-up” after conditions lifted sharply in March. “This likely reflects the significant take-up of the government’s HomeBuilder program,” the report stated.

The outlook was least optimistic — but still above average — in retail, “suggesting that there may be moderation in conditions as consumer spending patterns normalise”, the NAB report noted.

Nicola and Orlando Reindorf, who own The Standard Store and just reopened a bricks and mortar shop in Sydney on the weekend, said they were feeling hopeful after a strong start to the year after a “rollercoaster” 2020.

“It was a very trying year,” Ms Reindorf said.

The couple, who have run the Surry Hills institution selling imported fashion for 10 years, lost their retail space last year during the pandemic, but have since opened a pop-up store and have now returned to Crown Street in their new premises.

“We’ve got a huge amount of support from the community,” Ms Reindorf said.

“We just opened on the weekend and it’s been a really positive start after such a difficult and negative year.”