Non-mining recovery losing vigour: NAB survey

Momentum in the non-mining economy appears to be slowing, despite an uptick in business confidence, a survey says.

More consistent signs of a broadening economic recovery have not been sustained, says NAB’s Alan Oster.

The momentum built up in the non-mining economy appears to be slowing, despite an uptick in business confidence through August as the Reserve Bank cut rates to a new record low.

NAB’s monthly business survey revealed a modest two-point gain in the confidence index to +6, but current business conditions fell by the same amount to a reading of +7.

The slide in the current environment was driven by falls in both trading conditions and profitability, while the employment component of the index held steady.

Despite the dip, current business conditions remain above the +5 long-term average, while the confidence reading is now in line with the historical norm.

“The recent downward trend in business conditions suggests that the non-mining recovery may have lost some vigour, but headline results from the survey still suggest these segments are performing well,” NAB chief economist Alan Oster said.

“The survey still gives us confidence in the near-term outlook for the economy, even though things may have cooled a bit.

“It is particularly encouraging to see that firms’ demand for labour remains quite solid, which will hopefully have some positive flow on effects to households.”

The survey continues to display a patchy picture across the economy as some industries clearly outperform.

Most sectors are showing positive readings, although lacklustre retail trade was seen of particular concern.

“The strength in business conditions remains largely confined to the major services and construction industries, while relatively subdued conditions in wholesale and retail warrant close monitoring, particularly in light of disappointing consumption growth in the Q2 national accounts,” Mr Oster said.

“We had been hoping to see more consistent signs of a broadening economic recovery in the survey by now, and this did appear to be the case earlier in the year, but it has not been sustained.”

NAB continues to expect a slowdown in the local economy through fiscal 2018, although it noted the forward-looking data within the survey were yet to reflect these fears.

The bank is tipping a decline in growth to be driven by comparatively sluggish resource export growth and a stalling of residential construction.

NAB reaffirmed its forecast for two more rate cuts by mid-2017 as the RBA grapples with the threat of a downturn in growth.