Business conditions hit a new record high in February: NAB survey

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National Australia Bank
A National Australia Bank (NAB) logo is pictured on an automated teller machine (ATM) in central Sydney September 12, 2014. Reuters/David Gray

An index of Australian business conditions soared to record highs last month amid sharp increase in sales and profits. A survey from National Australia Bank shows the index of business conditions rising 3 points to +21 in February.

Australia’s broadest business survey has shown that business conditions hit a new record high last month. Due to higher sales, employment conditions and profitability, the survey index was up 17 percent to 21 points. That was the loftiest point since the survey began in 1997.

The survey's measure of profitability climbed another 2 points to +21 last month as its sales index rose 3 points to +27. Conditions are still rising despite the economy only growing at 2.4 percent in 2017, with weak business investment and net exports dragging down fourth-quarter GDP results.

According to NAB chief economist Alan Oster, the survey shows that business activity was robust. He said the strength in conditions is broad-based across industry groups. "The fall in confidence may reflect the turbulence seen in international financial markets in early February, but confidence remains above average, suggesting that the impact was relatively limited," Oster explained.

Construction, mining, finance, and property and business services saw strongest conditions. The retail sector also recorded its highest reading in eight months. There was a 3 point jump in the index of forward orders, taking it to +11.

There were large increases in orders for wholesale, mining, manufacturing as well as in retail and finance, property and business. Oster said new orders at this level is consistent with non-mining domestic demand growth approaching 6 percent. He also noted that the gap between the best and the softest performing industries was at a relatively low level. The underperforming retail sector has recorded its highest reading in eight months.

Oster believes that jobs growth of about 27,000 per month could be expected if the surge in the employment index continuous. It is below the average monthly growth rate in jobs the ABS recorded over the last 12 months, but the bottom line is that strong jobs growth is not ending anytime soon.

The recent data also indicated a pick-up in momentum from recent patchy economic data. "After last week's release of below-expectation GDP growth data, the strength in business conditions and leading indicators makes us more confident that Australia will see stronger economic growth in coming quarters on the back of LNG exports, and business and government investment," the ABC reports Oster as saying.