Daily Commentary BY THE CURVE TEAM –

Business Still Booming

8th of May, 2018

The latest monthly business survey has confirmed the business sector is enjoying the most favourable operating environment since the inception of the survey in 1997. The burning question is how does that reconcile with a record low cash rate that looks like going nowhere fast?

Australian businesses are enjoying the most favourable business conditions in more than two decades according to the latest business survey. The business conditions index lifted back to its record high of 21 as profitability and trading conditions are surging. Business confidence is also well above its long run average.

The employment index, which is crucial for the economic outlook as far as the RBA is concerned, is also hovering around its record high. The employment index is somewhat at odds with the ANZ job ads report, which has fallen for the past three months.

For the RBA’s growth and inflation forecasts to be realised over the medium term, strong employment growth that will eventually lead to higher wages as spare capacity is eroded is desperately needed.

To reconcile the current RBA forecasts with the booming business conditions, you don’t need to look too much further than today’s chart. It overlays the business conditions index with the most recent consumer conditions from the monthly consumer survey.

The RBA will be hoping that the consumer conditions will eventually track business conditions higher and bringing with it stronger consumption growth.

David Flanagan

Director - Interest Rate Markets