According to NAB chief economist Alan
Oster, the November slump can be partly attributed to a surprise surge in
October: "We expected to see last month's spike in business conditions
unwound fairly quickly as it both came as a bit of a surprise, and was also out
of sorts with what we were seeing in some of the other leading indicators from
the survey, such as forward orders... We are paying close attention to what now
appears to be a downward trend in business confidence as that could naturally
have some implications for decisions around hiring and investment."
While subdued conditions were noted across
a number of industries, most sectors were still above the long-term average.
The construction sector remained strong as the only industry where conditions
did not fall in November, supported by the large residential property pipeline
and additional spending in non-residential construction. Things did not fare so
well for retail, however, which slipped back into negative territory as Christmas
approaches. "The subdued conditions in retail have been a major concern
for some time now, and that was manifested in a very disappointing outcome for
household consumption in the third quarter national accounts," said Mr
Oster, adding "We may see a bit of a rebound in the fourth quarter, but
retailers do not appear to be seeing it."
Along with weakness in the retail sector,
business is also concerned with rising energy costs and unsustainable wage
growth. While wages were up just 2 percent over the year to September according
to the most recent figures from ABS, Australian business reported rising wages
as their primary concern. "We saw some tentative signs of higher wages in
the survey, although that does appear to be weighing on the confidence of some
firms as well," said Mr Oster. Final product prices continue to slip
behind input costs, with most experts forecasting another weak quarter of
inflation coming up. According to the report, cautious spending behaviour by
consumers is mostly responsible for soft retail and personal services prices.
Despite falling conditions and confidence,
there is nothing in the survey to alter the bank's long-term view of the
Australian economy: "We remain cautiously optimistic that Australia will
see temporarily above trend economic growth in coming quarters, and while there
are still some significant challenges to the outlook, support from business
investment and infrastructure construction should be enough to prompt the RBA
to consider a gradual removal of emergency policy stimulus." NAB
commentators join most experts in their expectation for the first RBA hike to
come in the second half of 2018, although this remains dependant on the
strength of the labour market, wages growth, and wider economic conditions.
Image source: Xtock/Shutterstock