NAB business survey points to ‘ongoing recovery’

Businesses began 2021 in an upbeat mood, with confidence climbing in January after Christmas COVID shutdowns.

Corporate confidence lifted in January and remains at above average levels, with indicators of future activity pointing to an ‘ongoing recovery’.

Businesses began the new year in an upbeat mood, with corporate confidence climbing in January despite a Christmas period marred by COVID-19 outbreaks, which triggered temporary lockdowns in Sydney and Brisbane and state border closures.

NAB’s business survey for January showed operating conditions retreated from December’s multi-year highs but remained above average and at a level suggesting an expansion in overall corporate activity, the bank’s chief economist, Alan Oster, said.

“The survey continues to point to an ongoing recovery,” Mr Oster said.

NAB’s business confidence index lifted by five points to an above average 10 points, while conditions retreated from 16 points to seven points. A reading above zero indicates more positive than negative responses, and both confidence and conditions have surpassed pre-COVID levels.

The lift in confidence was led by personal and recreational services, which are playing catch-up to other industries such as retail as restrictions progressively ease.

The employment subindex signalled jobs growth, as more firms reported higher employment over the month than the reverse, “but does suggest the pace of growth moderated in the month”, the report said.

The Morrison government has crafted a “business-led” recovery package that relies on firms responding to a range of incentives to hire and invest. But companies will not do so until demand has recovered enough that they feel comfortable spending expanding their operations.

The NAB survey showed capacity utilisation edged higher in January to regain pre-pandemic levels around its long-run average, while forward orders also inched up to be just below average.

“We hope to see capacity utilisation rise further over coming months as demand picks up, which should, in turn, see businesses consider expanding capacity through hiring or investing,” Mr Oster said.

The survey question on capital expenditure also moved higher in January to be just above neutral levels, continuing a slow but steady trend over a number of months.

“This is a positive, tentative, sign that firms are willing to invest in capex again,” Mr Oster said. “We’ve been saying for some time we expect the turnaround in conditions last year to feed into better employment and capex activity. We’re starting to see early signs of this in the survey, but we’re still a while a way from very strong employment and capex activity needed to offset the contraction last year.”