Australia’s business conditions remain flat in May; non-mining sector continues to recover

The latest NAB Business Survey is in line with the ongoing recovery in the non-mining economy, according to the NAB Group Economics. Business conditions in May remained flat at 10, whereas business confidence dropped to 3 in May. Profitability of business rose again to 12 from 9 in April. This augurs well with the ongoing growth in Australia’s employment.

A continued rise was registered in capacity utilization and is at its highest level in more than five years. Even though space capacity absorption is seen moving in the right direction, it has not translated into firmer investment intentions yet.

The business sector’s confidence reading indicates that sentiment dropped again in May. The Budget had certain positive measures reading tax breaks for businesses; however, it has not been positively received as previous year’s Budget, when there was a sharp rise in business sentiment. This might probably show certain uncertainty regarding the election next month.

There were mixed conditions throughout the states. Victoria and South Wales recorded robust trading conditions, consistent with their current strong economies. Conditions in Tasmania continue to be high at all times, underpinned by the lower Australian dollar and high inflows of tourists. Meanwhile, Western Australian conditions continued to be subdued.

“The Survey is suggesting further improvement for the non-mining sectors going into Q2, with some evidence that growth is becoming more broad-based. There is no doubt that things have remained strong on the activity side, but firms continue to be relatively restrained in terms of their demand for labour,” stated NAB Chief Economist Alan Oster.

Overall, business conditions and confidence diverged last month. Conditions continue to be elevated and imply that the recovery in the non-mining sector continues to gain momentum, said ANZ in a research report.