Further confirmation of a loss of momentum. Conditions: down 2pts to +11. Confidence: down 2pts to +3.
The NAB business survey provides further confirmation of a loss momentum in the economy during 2018.
In November, the business conditions index fell by 2pts to +11, a reading which remains above average. This continues the downtrend in conditions since April.
Business confidence slipped by 2pts to +3, a slightly below average reading. This is interpreted as suggesting that businesses expect conditions to ease further.
The loss of momentum in business conditions is evident across most states, particularly the eastern states and most notably NSW.
These results are consistent with the unfolding downturn in the housing sector. New home building activity has swung from strong gains over the first half of 2018 to declines, with a small drop in the third quarter – ahead of likely more sizeable falls during 2019, in our view.
In addition, dwelling prices have pulled back following a strong run in Sydney and Melbourne, as well as declining further in Perth.
Business conditions remain weak in the retail sector, at -4 in November, and have eased in the recreational and personal sector.
Business conditions in the construction sector, which are volatile, weakened sharply in November, to a reported -4, down from +19 in October. Most likely this includes an element of noise and a rebound in December is likely in my view.
Conditions in the finance, business &property sectors reportedly rebounded modestly in November, up 3pts to +17, but still remain below levels prevailing earlier in the year.
Forward orders, a lead indicator of domestic demand, weakened, with a flat result in November, down from +3 in October.
Capacity utilisation level edged higher in the month and remains at an above average level.
Both trading conditions and profitability moderated in the month, down 2pts to +15 and down 5pts to +8, respectively.
Employment conditions by contrast rose by 2pts to +9, partially reversing a 4pt decline in October.
The survey suggests that, near-term, this is consistent with monthly job gains in the order of 20k. This would, assuming a flat participation rate, see the unemployment rate gradually decline from the current 6 year low of 5.0%.
It is worth noting that there is the risk that employment conditions ease in the months ahead if the loss of momentum in the economy gathers pace.
Capital expenditure was positive in the month, with a reading of +15. Recall that the official ABS capex survey reported that the non-mining sectors plan to lift investment in the 2018/19 financial year.
