Business confidence takes hit, despite strong conditions

An index of business conditions has risen to its highest level since 2008 but confidence is down, says NAB.

NAB’s Alan Oster.

An index of business conditions rose to its highest level since 2008 in August as employment conditions continued to improve, trends that could support the case to bring forward a Reserve Bank rate hike, analysts say.

But survey results released by NAB today indicate that consumer confidence remains downbeat and NAB analysts predict the RBA will likely “proceed with extreme caution”.

NAB’s business conditions index rose one point to +15 points, while business confidence fell by seven to five points over the same period.

Business confidence took a hit despite the strong conditions, the survey found, dropping slightly below the average, with businesses indicating that customer demand, government policy and cost pressures led to the deterioration.

However NAB’s chief economist Alan Oster said the drop in confidence was not a major cause for concern, given recent global volatility.

“It is probably too early to read much into the drop in confidence this month,” he said.

“While external shocks, such as the escalating tensions with North Korea, may have had some impact, we have actually asked for the first time in the survey what firms see as being the most influential factors impacting confidence.”

NAB pointed to improvements in labour market indicators.

“If employment conditions maintain these levels, that should see more than sufficient jobs creation to push the unemployment rate lower,” Mr Oster said.

“It remains to be seen how some of the longer-term challenges, many of which may be structural, will impact the labour market, but for now we are more confident that the unemployment rate will continue to improve.”