Daily Commentary BY THE CURVE TEAM –

Business Survey Slippage Continues

14th of November, 2018

The latest business survey has seen further slippage in both business confidence and business conditions. What this means for the outlook is highlighted in two key sub-indices.

October’s monthly business survey saw business conditions continue to slide from their record highs from earlier in the year. While trading conditions have held up over the past month, the profitability index continues to slide. Putting it in context though, the conditions index at 12 remains well above the long run average.

The same can’t be said for business confidence. The business confidence index fell a further 2 points in October and at 4, is now sitting just below the long run average. More importantly that the headline index numbers are the two indices related to employment and capacity.

The employment index fell 4 points from 11 to 7 in October. At its current level it still suggests reasonable employment growth going forward but not quite as strong as we have seen in more recent times. Should the trend lower continue then it could become a greater cause for concern.

Like the headline conditions and confidence indices, capacity utilisation has been drifting lower over the past couple of months and fell again in October. There is a directional relationship between unemployment and capacity utilisation and the later is falling there is upward pressure on the former.

While the unemployment index and capacity utilisation suggest the outlook for employment growth isn’t as strong as it has been, businesses are increasingly reporting difficulty in finding suitable labour. How that reconciles with the softer outlook for employment and what it means for wages will be the key.

On wages, today we get the latest quarterly wage data from the ABS. With a large rise in the minimum wage, the market is expecting a small uptick in wage growth for the third quarter. The market is expecting wage growth of 0.6% for the quarter with the annual rate rising to 2.3%. Also out today is the latest monthly consumer sentiment report.

David Flanagan

Director - Interest Rate Markets