Daily Commentary BY THE CURVE TEAM –

Business Survey Bucks Trend

14th of June, 2017

Australia’s business sector continues to be the bright spot in the economy according to the latest business survey. Business confidence remains above its long run average despite pulling back from its recent highs. The real strength is still business conditions, which remain well above their long run average and have had their best six month period since the GFC.

The ebullience from the business survey is in stark contrast to the consumer sector where confidence and the hard data, such as retail sales, has been weaker over the same period. How this disparity is reconciled will be key to the economic outlook. NAB’s Chief Economist Alan Oster summed it up best in his release of the survey, saying:

“Solid outcomes from the NAB Monthly Business Survey signal a divergence in conditions between the business and household sectors of the economy. How the disparity resolves itself will be critical to the outlook for growth. Optimists might point to solid employment conditions as providing the much needed catalyst to lift the household sector out of its current funk. However, significant structural headwinds still pose a hurdle that will prove difficult to overcome, keeping wages growth subdued and consumers cautious with their spending.”

The lift in the employment conditions only benefit the household sector if the employment market tightens to the point that it starts to drive up wages. As most wage deals are linked to inflation, we face a chicken and egg argument when it comes to lifting wages, unless another factor such as a vastly increased demand for labour emerges.

We will get an update on the state of consumer sentiment later today when the latest consumer sentiment survey is released. If the weekly ANZ/Roy Morgan consumer confidence survey is anything to go by, we are unlikely to see a significant lift in consumer sentiment over the past month.

David Flanagan

Director - Interest Rate Markets