Daily Commentary BY THE CURVE TEAM –

Solid Business Conditions Continue as Confidence Wanes

12th of September, 2018

Australian businesses continue to enjoy some of the best operating conditions since the GFC, even if they are slightly below the boom period between late 2017 and early 2018. However, even with solid conditions, confidence is waning.

The latest monthly business survey showed business conditions lifted a little in August after drifting lower from the post GFC highs the previous three months. Profitability was the big improver over the month while trading conditions improved a touch.

The most important sub component of conditions, the employment index, remained unchanged at an elevated level of 10 which bodes well for employment growth over the month ahead. Although it is at odds with the job ads report, which is the other key leading indicator, that has flatlined over the past few months.

While business’ are enjoying the good times their confidence is waning. The confidence index continues to slide and now sits below the long run average. This is important as it can be an insight into future activity. Confidence has also historically led conditions, even though the strength in the relationship hasn’t been as strong in the past year or so.

Political uncertainty and headwinds to the consumer could also be weighing on business confidence.

We will get an important update on the state of the consumer when the monthly consumer sentiment survey is released this morning. The weekly survey is a little lower which along with ongoing political uncertainty, falling house prices and out of cycle rate hikes from the banks, could weigh on sentiment.

David Flanagan

Director - Interest Rate Markets