Tuesday night’s budget is set to ride a business profitability and employment rocket to the next election, according to the latest NAB business conditions survey.
On top of the Reserve Bank’s forecast of GDP growth taking off in the second half of this year, the NAB economics team is reporting Australia’s equal-strongest business conditions since the survey started 21 years ago.
Sales, profitability and employment conditions all gained strongly last month to remain well above their historical average. The NAB economics team says the employment index rise is consistent with “a robust rate of jobs growth of around 24,000 per month”.
“While the ABS employment data has softened in recent months and the unemployment rate has been broadly unchanged for around a year, the employment index and survey leading indicators of labour market conditions all point to this being a temporary phenomenon.”
The promise of continuing strong employment growth and corporate profits provide the revenue lift Treasurer Scott Morrison needs to deliver tax cuts while still chipping away at the federal debt and deficit.
Particularly pleasing is that conditions are above or equal to their historical average in all the states, though WA remains a laggard.
The NAB survey is well regarded with both the RBA and Treasury relying on it for an indication of where business is heading. It provides some independent substance to the official family’s optimistic forecasts for the financial year ahead.
But – and there’s always a but with forecasting – NAB says its survey still points to subdued inflation and wages growth. Furthermore, the retail sector remains the weak reed of Australian industry with conditions and employment effectively flat. That combination of factors continues to be a reason for caution about the budget’s brave forecasts for household consumption growth.
At the other end of the performance scale, the standouts for employment growth last month were mining and construction for gold and silver respectively, followed by finance, business and property and the recreational and personal services industries.
The NAB commentary expressed some relief that recreational and personal services picked up in light of the soft retail sector.
It looks like we continue to direct more of our discretionary dollar to services and experiences, rather than buying stuff.
As has been the case for the past year, the rise in business conditions has not been matched by NAB’s business confidence survey. Conditions have been on the rise for the past year while confidence remains steady, albeit at a higher-than-average level.
Instilling confidence will be part of Mr Morrison’s sales job on Tuesday night – both in the government and the economy. A wary electorate will need to be convinced stronger growth is kicking in as the Treasurer forecasts. They’re used to being disappointed.
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