Business confidence falls in October

Business confidence fell last month despite strong conditions of trading, profitability and employment being close to those seen before the GFC

Business conditions stayed strong in October, which is good news for the economy – not that the mood of the business community is showing it, with business confidence falling.

National Australia Bank’s index of business conditions – based on measures of trading conditions, profitability and employment – remained at a relatively high nine points in October.

That’s only a couple of points below the highest levels seen since the global financial crisis in 2008, and well over the zero level where positive and negative responses to survey questions are evenly balanced. And this augurs well for the economy’s transition away from a reliance on mining investment.

Consistently above-average outcomes since March offer reassurance that the recovery in the non-mining sectors of the economy is gaining more traction, NAB economists Alan Oster, Riki Polygenis and James Glenn said in their report on the survey released on Tuesday.

‘Services industries continue to outperform, while the mining industry trails well behind,’ they said. The business-conditions index was also consistent with ‘solid outcomes’ for the jobs market.

But business confidence was not so healthy.

‘Business confidence has been stubbornly sluggish in the past six months, despite solid business conditions, with the index dropping back to two points in October ,from five in September – a positive result, but still well below the long-run average,’ they said.

Resolution of the Liberal Party leadership seems to have given confidence only a temporary boost, but it was hard to disentangle this effect from recent concerns about the international economy and financial market volatility.

But despite the concerns about confidence, the survey suggested that non-mining business investment was expanding at a faster pace than official figures from the Australian Bureau of Statistics indicate.

‘In Australia, we remain of the view that the gradual recovery in the non-mining sector is gaining traction,’ NAB’s economics team said.