Australia: Positive economic signals - Westpac
Elliot Clarke, Research Analyst at Westpac, points out that Australia’s business conditions, as reported by the NAB business survey, hit a record high in February back to 1994.
Key Quotes
“Confidence edged back in the month, but remains at an above-average level. The strength in conditions has broadened by state, with strong conditions now being reported in NSW, Victoria and Queensland. However, by industry, there remains a material divergence. Momentum is most apparent in the goods producing industries of construction, manufacturing and mining. Of these industries, the construction and manufacturing sectors are benefiting from elevated levels of residential construction activity as well as the strong uptrend in public and private non-residential construction (offices; accommodation; and health care among others) and infrastructure investment. Meanwhile, mining is profiting from the elevated level of commodity prices and Australian producers’ low cost structure.”
“Conditions in the business and consumer sectors are more subdued, but still much improved. Abstracting from monthly volatility, the February survey points to continued robust demand for labour and a desire to invest in capital. However, evident in the recent National Accounts and other ABS releases, this investment is lopsided, with strength in construction, but not in non-mining equipment spending.”
“The Australian Chamber Westpac Survey of Industrial Trends offers a deeper investigation of the state of Australian manufacturing. Though overall activity and new orders have pulled back from their late-2017 highs, they remain at elevated levels versus history. Further, despite the recent strength in the Australian dollar, export orders continue to track higher. Looking ahead, expectations for the coming six months are very positive. As a result, manufacturers continue to add to their headcount and hours worked. While investment intentions have turned down, they are still indicative of solid growth in equipment and construction spending. The need to invest is structural as well as cyclical: the survey detail highlights that capacity is a key impediment to growth.”
“Turning then to consumer sentiment, the Westpac-MI survey printed at 103, a touch higher than February and the fourth consecutive reading above the 100 optimist/ pessimist divide. Family finances versus a year ago and expectations for the year ahead both improved in the month, as did year-ahead expectations for the economy. In contrast, the five-year view on the economy deteriorated in the month, perhaps in response to rising trade frictions following President Trump’s tariff announcement. Supporting this view, ‘international conditions’ had the highest news recall in 2 ½ years and was regarded unfavourably. Taking a longer-term view, economic conditions are above average; along with continued strength in employment growth, this is resulting in households having strong confidence in their job prospects. That said, family finances remain sub-par and this is affecting spending decisions. ‘Time to buy a dwelling’ remains well below average on affordability concerns. Notably, the ‘time to buy’ index for Sydney and Melbourne is much lower than elsewhere and house price expectations in NSW are materially lower than elsewhere. Finally, an important point on risk sentiment from our ‘wisest place for savings’ questions: more respondents currently favour paying down debt than those who favour real estate and shares combined – consumer caution endures.”