Business conditions see drop in October, survey shows

The NAB business conditions index, an aggregation of trading conditions, profitability and employment fell in October to +6 index points down from +8, returning to May 2015 levels.

NAB chief economist Alan Oster said the bank was becoming concerned about some of the trends it is starting to see in the business survey.

While conditions are still at above average levels, if the recent trajectory continues we could be looking at an economy that is rapidly losing momentum.

“In fact, we are clearly more concerned than the RBA about the near term outlook,” said Mr Oster.

“In addition to that, business confidence is also back below average levels.”

While there was some variation across the major industry groups in the survey, there was some narrowing in business conditions between non-mining industries in the month, this was partially the result of deterioration in conditions for the best performing (services based) industries.

“There was, however, a noticeable improvement in retail conditions, although the trend remains quite soft” said Mr Oster.

Mr Oster said within business conditions, both trading and employment conditions deteriorated, while profitability was steady.

“Softer employment conditions are a concern, particularly with the index now threatening to drop back into negative territory,” he said.

“Any further weakening would suggest future employment growth that is inadequate to prevent deterioration in the unemployment rate.”