Business conditions still deeply negative despite bounce: Andrew Hanlan

Business conditions still deeply negative despite bounce: Andrew Hanlan
Business conditions still deeply negative despite bounce: Andrew Hanlan


Business conditions and business confidence remained deeply negative in May - despite a bounce from the extreme lows of April, when the nation was in a partial lock-down (particularly for “non-essential” workers). 

That was a key finding from the NAB business survey conducted from May 19 to June 1. The previous survey was taken from April 23 to 30. 

Business conditions rose from -34 to -24 in the month. That is still below the low point in the GFC, of -16.5, but above the 1990s recession low of -39. 

This bounce in conditions occurred as restrictions started to ease and the economy slowly reopened, albeit a reopening that is uneven across sectors and across states. 

Business confidence, having collapsed to a never before seen low of -65 in March, has clawed its way back to be around “recession levels” in May, at -20. That compares to the lows in the past cycles of, -30 during the GFC and -23 in 1990. 

Clearly the situation remains fluid and fast moving. The continued easing of restrictions in June will see a further bounce in business conditions. 

Even so, the detail of this report - which was weak to very weak - highlights that a return to business as usual is still some way off. 

Forward orders were extremely weak for a third consecutive month, at -29, showing only limited improvement from the -35 recorded in April.

Considerable space capacity has emerged in the wake of this economic recession, with capacity utilisation at 74.5 in May. That is up from an extreme of 71.9 in April but compares to around 82 during the second half of 2019. 

Against this backdrop of excess capacity, continued sharp falls in new orders and an uncertain outlook the business sector is downbeat on hiring and investment the survey finds.

The detail around business conditions for May was: trading conditions rose from -31 to -18; profitability moved from -35 to -19; while employment showed very little improvement, edging up from -34 to -31. 

The capital expenditure index rose from -32.7 to a still very weak -21.6. The path of retail spending and business investment spending will be very different as the economy reopens and recovers from this recession. 

By state, NSW is outperforming, with business conditions lifting to -13 as the state reopens earlier than in some other jurisdictions. Across the other mainland states readings for May were: Victoria, -25; Qld, -27; SA, -33; and WA, -35. 

By industry, business conditions rebounded in retail, which has begun to reopen on an easing of social distancing measures.

Across other sectors, conditions are mixed, reflective of the staggered re-opening and the challenges created by the pandemic and the recession. Recreation & personal was still deeply negative at -37 with many venues yet to re-open. The finance, business & property industry group was also deeply negative, stalling at around -27. 

Andrew Hanlan is an economic analyst at Westpac

Andrew Hanlan

Andrew Hanlan

Andrew has been with Westpac since 2002. After starting his career in the public sector, Andrew worked at the Commonwealth Treasury in Canberra, before enjoying a stint at Parliament House, where he worked as an adviser to the Finance Minister. His main focus is analysing the Australian macro economy.

Andrew Hanlan Business Conditions

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