Business confidence rebounds under new normal

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AUSTRALIA’S business conditions are rebounding at a more steady rate, as activity settles into a less elevated new normal as reopening continues over November.

According to the NAB Monthly Survey for November, the country’s stabilising business environment was supported by a rise in NAB’s employment index.

“Conditions continued to rise in November, although the post-lockdown bounce was less pronounced this month,” said Alan Oster, chief economist at NAB.

This index result was driven by staff again being hired as activity recovers in industries including manufacturing, which was up by 18 points, property and business by nine points and retail, up by eight points.

Though results were still in the negative for the recreation and personal services industry which was most impacted lockdowns.

“Conditions improved noticeably in the retail and transport sectors, which were heavily impacted by the lockdowns, but deteriorated in construction.

The employment index for the country bounced back by five points to plus 11 points for the month, up again from October. Though still below the year’s high of plus 24 points in May, which was a record for the entire history of NAB’s survey.

“Much of the improvement came in Queensland and South Australia, with conditions in Victoria only lifting gradually and NSW largely steady,” added Oster.

The employment index saw NSW bumped up by seven points, while Victoria saw improvements from its lowest point with a 14 point increase.

On a quarterly basis, the survey found that labour cost growth was up over the month by 1.4%, with labour supply still limited due to this bounce back in employment and borders still closed.

“With employment rising rapidly, businesses’ total wage bills have naturally increased. As the employment recovery continues and the labour market tightens further, these gains should eventually translate into growth in underlying wages, but how quickly that occurs remains to be seen,” said Oster.

Meanwhile business confidence was down over November from plus 20 in October to plus 12, though this was still above longer term averages.

“Confidence remains high across states and industries, albeit it has come back to earth a little after the optimism associated with the end of lockdowns,” said Oster.

Capacity utilisation was up however, reaching 83.2% for the month, with forward orders at plus 14 and capex up five points.

“Forward indicators are also very strong with a rise in capital expenditure a welcome sign that businesses are beginning to look towards a period of expansion. These results align with the strong rebound in activity that we believe is now underway, as well as a positive outlook for the coming months with vaccination rates now very high,” concluded Oster.

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