Retail drags business conditions to barely recover from December lows: NAB – The Australian Financial Review

While NAB noted that “seasonality and statistical volatility” might have driven some of the shocking December result (which the bank has now revised upward slightly), the overall trend in conditions has been down and the January survey “confirms this”.

“While we don’t think activity in the business sector has crashed, we think there has been some loss in momentum,” Mr Oster said.

The survey showed that mining and finance, as well as business and property services, showed no change after a decline in December, when the index fell 9 points.

In trend terms, mining remains strongest, followed by recreational and personal services, and finance, business and property and wholesale, which all remain above the national average.

Last week Reserve Bank governor Philip Lowe retreated from his monetary policy guidance that the next move in interest rates would likely be up.

“The probabilities appear to be more evenly balanced” between an interest rate hike and an interest rate cut,” Dr Lowe said in his first public speech of the year.

With a trend for weak business confidence and conditions in addition to falling house prices and no meaningful increase in inflation, the RBA is now softening its outlook on rate hikes.

The NAB survey also showed that capacity utilisation eased from 81.9 per cent to 81.4 per cent in January, and while that remains above the long-term average of 81.1 per cent, is still a signal for soft inflation. Both input prices and labour costs growth edged lower in the survey.


JPMorgan’s Tom Kennedy said the lower labour costs meant only a slight upward bias to the unemployment rate in the near term.

The survey coincided with the release of investor home lending data which showed that loans to investors dropped to a seven-year low in December alongside a 9.7 per cent annualised fall in Sydney house prices.

This could give the RBA some room to cut rates if economic conditions worsened.

UBS’s George Tharenou said housing finance would slow further and that peak-to-trough forecast of home prices could fall 14 per cent “even assuming the RBA cuts”.

“We reiterate our non-consensus view that GDP growth slows sharply to 2.3 per cent in 2019, unemployment drifts up to 5.25 per cent and the RBA cuts in November 2019,” he said.

After holding the official interest rate steady at 1.5 per cent at the first monetary policy meeting of 2019, the RBA forecast the economy to grow about 3 per cent this year and a little less in 2020, down from its 3.5 per cent forecast in December.

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