Improved business confidence driven by construction industry

by Julia Corderoy13 Aug 2014
Business confidence hit a four year high in July with stronger sales and profits putting the spring back in the steps of Australian businesses.

The NAB Business Survey recorded that business conditions jumped 6 index points over the month, reaching +8 index points – which is well above the +5 index point long-run average of the series.

“Firms still appear unfazed by the Federal government’s ‘tough budget’, possibly taking comfort in the bounce back in consumer confidence. Stronger sales and profits are driving the trend, but the recovery continues to be relatively jobless with the employment index seeing more moderate gains,” NAB’s chief economist, Alan Oster said.

Whilst this optimism is good news for the Australian economy, it must be noted that the improvement is narrowly spread across the market – with the new found strength in conditions concentrated in the construction sector. 

The sustained period of low interest rates has spurred an increase in demand for property, and as a consequence, has led to a surge in new building construction – particularly in apartment construction, thanks for foreign investment.

However – as recent residential property data released by the ABS suggests – we may be starting to see the property market cool down. 

“With building approvals and house prices expected to slow over the next 12 months, we will need to see a more broad based improvement to maintain conditions at (or above) current levels.” Oster said.