NAB - Exuberance in the business sector contradicts household sector slowdown

National Australia Bank's (NAB) business confidence jumped to 7 q/q in Q2. The conditions index jumped 4 points, to +13 index points, which is well above the long-run average and its highest level since early 2008.

According to NAB Group Chief Economist Alan Oster, “There is no denying that the business sector is showing an exuberance that is clearly disconnected from what we are seeing in the household sector. It is still unclear how that disparity is likely to play out, and our recently released NAB Cashless Retail indicator suggests some near-term softness in spending, but some of the other trends we are seeing in the Survey in terms of hiring intentions and even wages might give us some cause for optimism”.

Key points

The Survey indicates that quarterly labour costs growth has lifted from 0.3% q/q in late 2015, to 0.6% in Q2 2017

While movements in leading indicators were somewhat mixed this quarter, overall they point to a continuation of the recent strength, which is feeding into solid employment and investment intentions

The Survey is generally suggesting a slow build of inflationary pressures

Firms are still very upbeat about the short-term outlook, which hopefully means that we will see a continuation of the current strength in business conditions

We are seeing some of the previous underperformers lift, which is good news in terms of where we are in the economic cycle