Australia: Strong business conditions supporting confidence through market volatility - NAB

Australia's business confidence improved, rising 3 points to +6 index points in June, while business conditions were also up 2 points to +12 index points.

According to Alan Oster, NAB’s Chief Economist, “we are very much seeing a continuation of the positive trends evident in the Survey for some time now”. Overall, in June, which is well above the long-run average of +5. On the components of business conditions, Mr Oster noted that “strong activity seems to be having a positive effect on labour demand in the Survey, despite recent “questionable” official labour market statistics suggesting otherwise”.

Summary: NAB Monthly Business Survey - June 2016
The overall narrative of the Survey has not changed this month, even in light of recent disruptions to financial market sentiment. The results point to a further improvement in the non-mining economy in Q2. Also the rise in confidence suggests that businesses are taking more notice of their own results than turbulent international developments. Encouraging forward indicators are also improving.  

The RBA should thus be reasonably comfortable with the present state of economic activity – and draw reassurance from the Survey’s results.  However, the view on inflation is arguably more important at this juncture. Here the Survey is not suggesting any meaningful turnaround in near-term inflation pressures – indeed retail prices trends turned negative in June. These trends justify the highly accommodative setting for monetary policy. As such the August RBA meeting (post Q2 CPI) will be ‘live’. On balance the strength of the local economy and labour market suggest rates will remain on hold (although it is likely to be a very close call).