Business conditions, confidence improve

Posted on 5th Oct 2020

Article By: Colin Brinsden

Business conditions are improving, but employers remain cautious about taking on new workers or restoring their staffing levels as a result of the coronavirus pandemic.

The National Australia Bank monthly business survey showed its conditions index rose by a further six points in September, buoyed by its trading and profitability sub-indices.

"After some volatility in the two months, conditions are around the level seen pre-COVID," NAB group chief economist Alan Oster said. .

"Employment continues to lag, however, likely reflecting the fact activity has not yet fully recovered and firms remain cautious."

While conditions are back around the levels seen in early 2020, at an index of zero, they remain well below average.

The business confidence index also rose four points in September, building on the gains of the previous month and is now well above the trough seen in March.

But despite the rise the confidence index is still at minus four points, suggesting sentiment remains fragile.

"While retail currently sees the best conditions, it is likely that, as government support fades and households adjust to a weaker labour market, retail pulls back," Mr Oster noted.

The survey was released a day earlier than usual ahead of Treasurer Josh Frydenberg handing down his 2020/21 budget on Tuesday night.

A separate survey also showed the construction industry improving across the country with the exception of Victoria, where activity has sunk to the levels seen when the coronavirus pandemic first hit.

Overall, the Australian Industry Group-Housing Industry Association performance of construction index rose 7.3 points to 45.2 in September.

It indicates the industry is contracting at a slower pace compared to August with the index remaining below the 50 points.

Even so, conditions improved in September in all states except Victoria, where its index sank to extremely low levels similar to April and May's record lows.

Ai Group head of policy Peter Burn said there are gathering signs of a tentative construction turnaround.

"Outside of Victoria, construction conditions improved marginally in September with more distinct gains in South Australia and Western Australia," he said.

"In contrast, Victorian construction remained in a deep trough."

Notably, house building activity entered into positive territory for the first time since February.

Australian Associated Press