Business conditions have deteriorated sharply, with steep falls in employment prospects, as well as sales and profits, according to the NAB business survey.
- The NAB business survey points to the economy cooling and unemployment rising in coming months
- While business confidence edged up, it is still below average, suggesting an improvement in conditions is unlikely in coming months.
- Employment, sales and profit all fell sharply and are also below average readings
The long running and respected survey found business conditions unwound rapidly last month, after a surprise jump in March.
Crucially, the survey’s employment index — considered by many, including officials at the Reserve Bank, to be an accurate leading indicator of labour market trends — tumbled to a below average reading for the first time since 2016.
Price pressures, including wages, remained weak, suggesting not only is business activity slowing but there is still plenty of spare capacity in the jobs market and little pick up in the inflation pulse.
The weakness in employment and wages comes ahead of official figures from the Australian Bureau of Statistics, which are seen as highly influential in the RBA’s thinking on interest rates.
Weak readings for the Wage Price Index (Wednesday) and jobs data (Thursday) will put the RBA under increased pressure to cut rates as early as next month.
The NAB survey noted that, while leading indicators of the jobs market have been mostly positive to date, they could be expected to decline based on the prior slowing in economic activity.
NAB’s chief economist Alan Oster said it appeared the bounce in business conditions in March was short-lived and prospects for the jobs market were a particular concern.
“While trading and profitability have previously dipped below average, this is the first time the employment index has shown signs of weakness,” Mr Oster said.
“Employment has previously held up better — similar to official data — the impact of slowing activity and a weak outlook may now be flowing through to the labour market.”
Mr Oster said the employment index reading, based on historical context, pointed to jobs growth of around 14,000 a month.
“This is a slowing from the rates seen through the second half of 2018 and early 2019 … [and] is in accordance with our view that the slowing in growth will likely mean that no further progress is made on reducing the unemployment rate,” he added.
‘Loss in momentum’ likely to persist
While business confidence edged up marginally, the reading is not optimistic and remains well below its long term average.
Low confidence, coupled with weakness in other forward looking indicators such as forward orders point to tough times ahead.
“The forward looking indicators of the survey continue to suggest that the weakening in conditions over the second part of 2018 is unlikely to be reversed any time soon,” Mr Oster said.
“Conditions are still positive but below average, suggesting a loss in momentum but that for now the private sector continues to grow moderately.”
The declining conditions were recorded broadly across all states and territories, except South Australia, which was already struggling and well below average.
“The south-eastern states generally continue to show the most favourable business conditions on the mainland and Tasmania continues to stand out overall,” Mr Oster said.
“South Australia looks weak, and it is now clear Western Australia has again deteriorated after showing some signs of recovery in late 2017/early 2018. A year later, most of the improvement seems to have been reversed.”