Employment conditions slump – jobs growth to slow. Business conditions: down 4pts to +3. Business confidence: up 1pt to 0.
The NAB business survey for April was particularly weak, providing further evidence of the economic slowdown which emerged in mid-2018 and has extended into 2019.
The survey was conducted from April 18 to 30.
One word of caution, this year with Easter falling in the same week as ANZAC Day many folk took an extended break – hence the business surveys may overstate the extent of weakness in April.
That said, the trend is clear – the economy has slowed and slowed substantially, with the downturn broadening across industries. The downturn was led by the housing sector and the consumer, constrained by weak wages growth and high debt levels.
The international backdrop is also challenging, with slow slowing of global growth and a weakening of international trade. The exception is the lift in key commodity prices – notably, iron ore and coal – which is boosting national income growth to a pace in excess of 5%.
Business confidence has evaporated, with the index at 0 a well below average reading. Confidence averaged +9 over the first half of 2018.
Business conditions fell by 4pts to +3, also a below average reading. This reading, along with a +3 for December, is the softest result since the start of 2016. By comparison, conditions averaged +18 over the first half of 2018.
Forward orders remained weak, steady at -1.
As we have highlighted previously, the key question is how the economic slowdown and the loss of business confidence will impact business spending decisions.
We expect jobs growth and investment to slow. The April survey provides evidence of this.
Employment conditions have slumped, falling from +6 to -1. That is a well below average reading and the first negative since January 2016.
The survey suggests that employment conditions at these levels are consistent with near-term job gains of around 14k per month. This equates to a 1.3% annual pace, well down from the 2.4% rise over the past year and below working age population growth of around 1.7% – pointing to upward pressure on the unemployment rate.
On capital expenditure, there has been a trend softening since the start of the year, with the index in March touching a 5 year low (see chart overleaf).
Firms are experiencing a loss of profitability, with the index falling to only +1, down from +19 over 2018 H1. This loss of profitability across the non-mining economy will weigh on the investment outlook.
By industry, business conditions in April were relatively soft across all industries with the exception of mining (which is benefitting from high commodity prices – notably iron ore and coal). See charts below.
By state, business conditions have slowed in each of the four major states – with the housing downturn and weak wages growth key dynamics that are relatively broadly based.
