Australia's business confidence and conditions give optimistic outlook for investment, employment growth

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New South Wales CBD
People walk through the Central Business District on the first day of Autumn in Sydney March 1, 2004. Reuters/David Gray

Australian business conditions remained upbeat last month as both profits and sales remained healthy. A survey reported on Tuesday showed that a pickup in confidence was positive for the investment outlook.

The nation’s business sector looked promising in early 2018. Business conditions and confidence are stronger than ever compared to recent years. Aside from a positive outlook for investment, it is also a good sign for a broader economy and employment growth.

The most recent National Australia Bank (NAB) Australian Business Confidence Survey for December 2017 shows an improvement in confidence. Improvements in profitability, trading and confidence have been recorded as well.

The poll’s measure of profitability ticked up a point to +15 last month, while its sales index climbed one point to +18. Its measure of business confidence bounced to the highest reading since July (4 points to +11).

The improvement in confidence, as suggested by the survey, helps to narrow the gap to the separate conditions index which stayed at elevated levels. “The business confidence index bounced 4 points to +11 index points, the highest level since July 2017, perhaps driven by a stronger global economic backdrop,” Business Insider Australia reports NAB Chief Economist Alan Oster as saying.

Oster said the jump has reversed the noticeable downward trend since around mid-2017. He added that it has helped narrow the gap between business conditions and confidence and is a good signal for investment.

Jobs growth

The NAB measure of employment points to strong jobs growth of about 300,000 annually. Construction firms saw booming conditions amid public investment and housing.

Mining was no longer a drag on conditions. The sector enjoyed above-average activity.

As for the retail industry, the sector stayed in the doldrums because of tight competition. It was the lone sector to report negative conditions at -2.

Oster explained that final retail prices weakened sharply last month into negative territory and are running at a slower rate than purchases costs and labour costs, pointing to margin compression. “The employment index implies employment growth of a little less than 300,000 at present, and a slowdown to around 240,000 per annum over the next 6 months, or a monthly pace of around 20,000 per month.”

Based on the ABS’ seasonally adjusted series, employment in Australia rose by more than 400,000 last year. The employment subindex eased a touch from November. Oster, however, said that it bodes well for employment growth.