According to recent studies, June was a mixed month for Australian businesses. While business conditions advanced by one point to a reading of +15 when compared to May, business confidence took a hit, declining by one point for an overall total of +6. On the surface, one would probably assume that the two measurements are inextricably linked – the better the conditions, the more chance of success and, therefore, this should see an increase in confidence. However, the relationship between the two is more complex and the readings are a result of various different factors and influences. With that being said, does this latest survey from the NAB business confidence index spell doom and gloom for Australian business or is the crisis of confidence merely a temporarily blip on an otherwise booming economy?
Do the business conditions readings tell the whole story?
According to Westpac research analyst Andrew Hanlan, business conditions “are consistent with strengthening of domestic demand over the past year or so” – despite the fact that conditions increased from May to June, they still remain a little lower than over the past six months, which turned up particularly high numbers. It’s also worth pointing out that conditions on the ground for Australian businesses suffered an extremely sharp decline in the month of May and so a halting of this or even a slight rebound was to be expected in the following month(s).
While conditions are still above average across the board, outcomes across the various different industries were mixed in the month of June and conditions remained the strongest in sectors such as mining and construction, with areas such as retail remaining noticeably weaker. Nevertheless, business conditions continue to remain more than acceptable across the large majority of states and as a result, various industries have subsequently capitalised on this business-friendly attitude of Australia – the forex broking industry for example now caters for a number of brokers up and down the country and provides a safe and secure experience for those looking to invest due to the country’s tight regulations.
Business confidence – is there a cause for concern?
Forgetting the facts and figures for the moment, it’s important to note that confidence in any industry ebbs and flows and documenting the change in these sorts of figures from one month to the next holds very little intrinsic value. In order to ascertain exactly where business confidence is at, it’s better to look at the statistics over the course of the year and then compare them to the industry average or figures over the last few years to get a better overall picture of the situation.
Although business confidence may be down by one point on the NAB index, a quick look at the same survey done in April indicated an increase in business confidence of +11, followed by a sharp decrease in May which was not too dissimilar to that of the business confidence statistics. This indicates that the decline in confidence is reflective of a downward trend which has been seen in recent months and, yet, +6 is in line with the long-running average of business confidence, so after delving a little deeper, it can be seen the there’s really no cause for concern just yet.
Other key statistics
The NAB monthly survey showed that trading and profitability increased by +3 and +5 respectively after a dodgy looking month of May. Despite employment taking a -4 hit, NAB’s chief economist Alan Oster remains confident that “employment will continue to grow at a slightly stronger rate than population over 2018” and this should see the “unemployment rate decline and a gradual pickup in wages growth.” Oster also went on to say that the sub-index still remains slightly above its long-term average target, which would indicate that the recent decline is more of a blip than indicative of a downward trend.
Month to month readings are simply a snapshot in time
When it comes to predicting trends or taking pre-emptive action, it’s impossible to overstate the importance of analysing statistics from month to month. However, blanket statements such as “business conditions are up” often need to be taken with a pinch of salt because they often mean very little in isolation without any sort of context.
With regards to the aforementioned business confidence and conditions, both figures remain around or above what is to be expected and minimal changes from month to month are unlikely to change the fact that the Australian economy is in a healthy financial state. Of course, statistics and data collected over the course of a year or more will provide a better picture of how various businesses are faring in their respective industries, but it seems for now at least that the future is bright for Australian business and investors will no doubt be looking to capitalise on this for the foreseeable future.
