Australia: Businesses conditions down, but still solid – ANZ

Felicity Emmett, Senior Economist at ANZ, suggests that the Australia’s February business conditions retraced some of the previous month’s gains, but remain at levels consistent with solid growth.

Key Quotes

“Confidence also eased back slightly. The details of the report were quite positive, suggesting that the business sector remains on a solid footing, with labour market indicators supportive of ongoing improvement in the unemployment rate.

• After spiking in January, businesses conditions retraced somewhat in February, but remain at solid levels and consistent with our view that the business sector began 2017 with some positive momentum behind it. Business confidence also edged down in February, alongside a further deterioration in the Federal Government’s standing in public opinion polling.
• Levels of business conditions continue to indicate solid levels of activity, and the details of the report support this view. Most notably, the profitability index remains consistent with strong growth in employment, while the measure of capacity utilisation suggests some downside risks to the unemployment rate in the near term. 
• Business conditions remain quite divergent across industries. Conditions in the mining sector have improved sharply recently on the back of stronger commodity prices and are now back up above their long run average. Conditions in the construction, manufacturing, and wholesale industries are also above average. The retail sector continues to struggle given ongoing strong competition and the associated margin pressure, although conditions have picked up slightly over recent months.
• On the inflation front, the measure of labour costs continues to edge higher, although we are yet to see this reflected in official measures of wage growth.”