Daily Commentary BY THE CURVE TEAM –

The RBA’s Outlook Takes Another Hit

15th of May, 2019

As both business confidence and business conditions continue to deteriorate, one key number from the monthly business survey spells trouble for the RBA’s outlook.

The latest survey of businesses across Australia released yesterday saw a further deterioration in almost all metrics that were measured. The overall business confidence index continues to hover around zero while the business conditions index fell to 3, its equal lowest level since early 2015.

Breaking down conditions by subcomponent, trading conditions continue to hold up ok with the index at 7 while profitability fell back to 1. The biggest movement and most important as far as the broader outlook, was the collapse in the employment index.

The employment index fell sharply in April, dropping from 6 in March to -1. The employment index has a pretty solid directional relationship with the annual rate of employment growth. As such, is points to a rapid slowdown in the pace of employment growth over the months ahead.

With employment outcomes crucial to the RBA’s outlook for both the economy and monetary policy, this latest data release will only put them under greater scrutiny. It will also place even further focus on tomorrow’s employment update for April. As the chart suggest, we could be in for some weakness in the numbers over the coming months.

David Flanagan

Director - Interest Rate Markets