EMBARGOED UNTIL: 11:30AM AEDT, 13 FEBRUARY 2018

NAB MONTHLY BUSINESS SURVEY JANUARY 2018

FURTHER CONFIRMATION OF BUSINESS STRENGTH
NAB Australian Economics
Strong trend business conditions provide further confirmation of robust business activity in Australia.
Strength was broad-based across industries outside of retail, although there has been some slippage in
household services. Business confidence again improved, although this pre-dates recent market turbulence.
Signs remain positive for investment and continued solid jobs growth.

HIGHLIGHTS
• How confident are businesses? The business confidence index increased 2pts to +12 index points, the highest level since
April 2017. This may reflect improved global economic conditions, and is an encouraging signal for investment. However,
the survey was conducted prior to the recent turbulence in international financial markets.
• How did business conditions change this month? The business conditions index jumped by +6pts to a strong +19 index
points, well above the long-run average of +5 index points. The business conditions index has been relatively volatile in
recent months, with changes in seasonal patterns playing a part, however on a trend basis conditions remain elevated.
• What components contributed to the result? By component, both trading conditions (sales) and profitability posted
strong gains while employment conditions were unchanged.
• What is the survey signalling for jobs growth? The employment index was unchanged in January, following several
months in which it has trended down. It remains consistent with a solid rate of job creation of approximately 20k per month.
• Which industries are driving conditions? Business conditions are solid to strong across all major industry groups with the
exception of retail. The construction industry in particular is performing well (see Themes of the month on page 2). While
the retail sector continues to struggle, there has been some improvement in recent months and, on a trend basis, conditions
turned neutral in January. In contrast, there has been some slippage in conditions in recreation & personal services to the
lowest level in three years, a trend which bears close watching.
• Which industries are most confident? Mining and construction are the most confident. While mining has come off a little
from its recent high, confidence in construction has recently been trending up (see Themes of the month on page 2). Retail
confidence has held up surprisingly well given the weakness in conditions, although confidence has moderated recently.
• Where are we seeing the best conditions by state? Business conditions are at least solid across all states. Tasmania is the
best performer in trend terms (+24 index points). Conditions in Queensland (+18), NSW (+17) and Victoria (+14) are also at
high levels, while SA (+9) is also reporting above-average levels despite some recent declines. The December improvement
in conditions in WA was largely maintained into the start of 2018 (at +7 index points).
• What is confidence like across the states? Business confidence is highest in trend terms in SA despite it having one of the
lower readings on conditions. Similarly, the business confidence index for WA is above its reported level of business
conditions (the lowest of all the states). Business confidence is tracking lower than conditions for the remaining states,
although it remains at reasonable levels, particularly for Queensland and NSW.
• What does the Survey suggest about inflation and wages? Reads on inflation from the Survey were mixed this month.
Purchase costs and final product price inflation eased slightly, but retail price growth returned to positive territory after
being negative last month. Labour cost growth was slightly higher and suggests stronger wages growth than is being
reported in the ABS’ Wage Price Index (SeeThemes of the month on page 2).
• Are leading indicators suggesting further improvement? Capacity utilisation again moved higher in January to 82.7, well
above the long-run average. This is a positive sign for business investment despite surveyed capex declining this month (see
Themes of the month on page 2). Forward orders also eased a little but remain above their long-term average.

TABLE 1: KEY STATISTICS CHART 1: LIFT IN CONDITIONS AND CONFIDENCE

Nov-17 Dec-17 Jan-18 30
Net balance
Business confidence 7 10 12 20
Business conditions 14 13 19 10
Trading 19 18 26
Profitability 15 14 23 0
Employment 8 6 6 -10
Forward orders 6 4 3
Stocks 2 2 1 -20
Exports 2 0 1
-30
% change at quarterly rate
Labour costs 1.2 0.8 0.9 -40
Purchase costs 0.6 0.5 0.4 Sep-98 Sep-01 Sep-04 Sep-07 Sep-10 Sep-13 Sep-16
Final products prices 0.4 0.4 0.3
Retail prices 0.3 -0.4 0.4 Business Confidence Business Conditions
Per cent
Capacity utilisation rate 81.7 82.3 82.7 * Dotted lines are long-run averages since Mar-97.

All data seasonally adjusted and subject to revision. Fieldwork for this survey was conducted from 24 January to 31 January, covering almost 410 firms across the non-farm business sector. Next
release date is 13 March 2017.

Contacts: Alan Oster – Chief Economist, Riki Polygenis – Head of Australian Economics, Antony Kelly – Senior Economist
© National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686
NAB MONTHLY BUSINESS SURVEY - THEMES OF THE MONTH
RISING CAPACITY UTILISATION A POSITVE SIGN FOR INVESTMENT CHART 2: CAPACITY UTILISATION AND NON-MINING INVESTMENT
• The NAB business survey continues to send a positive 85 30
signal for non-mining business investment. This is
consistent with the most recent ABS Private Capex survey 83 20
which points to much stronger non-mining investment in
FY18.
81 10

• While the survey indicator of capital expenditure fell to

its lowest level in six months on a trend basis, the broad 79 0
pattern of a pick-up starting in 2017 is unchanged (see
chart 12 on page 4). 77 -10

• Moreover, the survey capacity utilisation indicator

75 -20
continues to trend up, suggesting that the recent lift in
Jun-98 Jun-02 Jun-06 Jun-10 Jun-14
non-mining investment will be sustained. Capacity issues NAB capacity utilisation, trend, LHS
can also be addressed by taking on workers; a rise in the
Nominal non-mining investment, y/y% RHS
capacity utilisation indicator also tends to be associated
with a decline in unemployment (see chart 13 on page 4).

USING THE SURVEY TO GET A HANDLE ON WAGES GROWTH CHART 3: WAGE GROWTH - NAB VS ABS
• Growth in the ABS’ Wage Price Index (WPI) has been
40 5
tracking at very subdued levels.
30 4.5
• This has been in contrast to the NAB Business Survey 20 4
labour cost measure which moved higher starting in 2016
(see chart 30 on page 6). However, the labour cost 10 3.5
indicator is a ‘wage bill’ measure and so also reflects 0 3
changes in employment. To address this we have
constructed a wage growth proxy, which adjusts the -10 2.5
labour costs measure for employment changes (as -20 2
indicated in the Business Survey).
-30 1.5
• While the wage growth proxy points to higher growth -40 1
than reported in the WPI, it does not have the same Sep-98 Sep-02 Sep-06 Sep-10 Sep-14
recent pick-up as Business Survey labour cost measure. NAB wage growth proxy, LHS
Rather, it points to an extended period of broadly stable, ABS private sector WPI, y/y% RHS
modest, wages growth.

CONSTRUCTION SECTOR GAINS TRANSLATING INTO JOBS CHART 4: CONSTRUCTION SECTOR EMPLOYMENT
• There was a significant improvement in construction 40 16
industry business conditions on a trend basis over 2017
and condtions remained elevated in January 2018. 30 12
Construction confidence has also picked up in recent
months despite headwinds coming from a softening 20
8
housing market, particularly in Sydney. This probably 10
reflects the still elevated residential construction 4
pipeline, infrastructure construction and the lift in non- 0
residential building approvals last year. 0
-10
-4
• The lift in conditions has been seen across all three -20
components – trading conditions, profitability and -8
employment. The survey’s capacity utilisation indicator -30
for the sector is at high levels consistent with plenty of -40 -12
work being available. Jun-97 Jun-01 Jun-05 Jun-09 Jun-13 Jun-17
NAB const. employment, LHS ABS employment, y/y% RHS
• The lift in employment is particularly significant given the
rising share of employment found within the
construction industry – it currently stands at around
9½%. The strength in the survey’s employment indicator
has been matched by the ABS employment data, with
construction employment increasing by 10% last year.

Page | 2
NAB MONTHLY BUSINESS SURVEY – CONDITIONS AND CONFIDENCE
CHART 5: BUSINESS CONFIDENCE (NET BALANCE) CHART 6: BUSINESS CONDITIONS (NET BALANCE)
25
25
20
20

15 15

10 10

5 5

0 0

-5 -5

-10 -10
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Seasonally adjusted Trend Seasonally adjusted Trend

CHART 7: COMPONENTS OF BUSINESS CONDITIONS, NET BALANCE, S.A. CHART 8: BUSINESS CONDITIONS AND BUSINESS CONFIDENCE
30 30
25 20
20 10
15 0
10 -10
5 -20
0 -30
-5 -40
-10 Sep-98 Sep-01 Sep-04 Sep-07 Sep-10 Sep-13 Sep-16
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Business Confidence Business Conditions
Trading Profitability Employment
* Dotted lines are long-run averages since Mar-97.

CHART 9: BUSINESS CONDITIONS BY INDUSTRY, LATEST MONTH (TREND) CHART 10: BUSINESS CONDITIONS BY STATE, LATEST MONTH (TREND)
25 25
20
20
15
10 15
5
10
0
Business Conditions Business Confidence
-5 5

Business Conditions Business Confidence

Page | 3
NAB MONTHLY BUSINESS SURVEY – FORWARD AND OTHER INDICATORS
CHART 11: FORWARD ORDERS (NET BALANCE) CHART 12: CAPITAL EXPENDITURE (NET BALANCE)
10 20

15
5
10

5
0
0

-5 -5
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Seasonally adjusted Trend Seasonally adjusted Trend

CHART 13: CAPACITY UTILISATION AND UNEMPLOYMENT CHART 14: CAPACITY UTILISATION (PPT DEVIATION FROM LR AVE, TREND)
% % Capacity Utilisation
Ppts
6.5 78 10
Deviation from long-run average

6.0 79
5
5.5 80
0
81
5.0 -5
82
4.5 83 -10
4.0 84 -15
Current

3.5 85 -20
5yr range

2006 2008 2010 2012 2014 2016 2018

Unemp rate (LHS) Umemp rate, trend (LHS)
Cap use (RHS) Cap use, trend (RHS)
Source: NAB Economics

CHART 15: STOCKS (NET BALANCE) CHART 16: CASH FLOW (NET BALANCE)
12 40

8
30
4
20
0
10
-4

-8 0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Seasonally adjusted Trend Index Trend

CHART 17: EXPORTS (NET BALANCE) CHART 18: BORROWING CONDITIONS (% OF FIRMS)
4
100

80

2 60

40

0
20

-2 IV I II III IV I
2016 2017 2018
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Seasonally adjusted Trend
More difficult Unchanged Easier No borrowing required

Page | 4
NAB MONTHLY BUSINESS SURVEY - DETAIL BY STATE AND INDUSTRY
CHART 19: BUSINESS CONDITIONS (NET BALANCE) BY STATE CHART 20: BUSINESS CONDITIONS (NET BALANCE) BY STATE
40 40
30 30
20 20
10 10
0 0
-10 -10
-20 -20
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
Australia NSW Vic QLD Australia WA SA Tas

CHART 21: BUSINESS CONFIDENCE BY STATE (NET BALANCE) CHART 22: BUSINESS CONFIDENCE BY STATE (NET BALANCE)
20 20
15 15
10 10
5 5
0 0
-5 -5
-10 -10
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
Australia NSW Vic QLD Australia WA SA Tas

CHART 23: BUSINESS CONDITIONS BY INDUSTRY (NET BALANCE) CHART 24: BUSINESS CONDITIONS BY INDUSTRY (NET BALANCE)
30 30
20 20
10 10
0 0
-10 -10
-20 -20
-30 -30
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
Mining Manufacturing Retail Wholesale
Construction Transport/Utilities Finance/Bus/Property Rec & personal services

CHART 25: BUSINESS CONFIDENCE BY INDUSTRY (NET BALANCE) CHART 26: BUSINESS CONFIDENCE BY INDUSTRY (NET BALANCE)
30 30

20 20

10 10

0 0

-10 -10

-20 -20
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
Transport/Utilities Mining Finance/Bus/Property Rec & personal services
Manufacturing Construction Retail Wholesale

Page | 5
NAB MONTHLY BUSINESS SURVEY - EMPLOYMENT, WAGES AND PRICES
CHART 27: EMPLOYMENT CHART 28: EMPLOYMENT (NAB VS ABS)
15 0.6 25
20
10 0.4 15
10
5 0.2 5
0
0 0
-5
-0.2 -10
-5 -15
-0.4 -20
-10
-25
-15 -0.6 -30
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17
Seasonally Adjusted Trend ABS % p.m. trend (LHS) NAB trend net bal. (RHS)

CHART 29: EMPLOYMENT BY INDUSTRY CHART 30: LABOUR COSTS GROWTH

40 2.5 5
30 2 4.5
4
20 1.5
3.5
10 1 3
0 0.5 2.5
0 2
-10
1.5
-20 -0.5
1
-30 -1 0.5
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 -1.5 0
Mining Manuf Constn Mar-97 Mar-01 Mar-05 Mar-09 Mar-13 Mar-17
Retail Wsale Transp Labour Costs (NAB Survey, lhs)
Fin, bus, prop Rec, pers ABS Private Wage Price Index (y/y % change, RHS)

CHART 31: COSTS AND PRICES (% CHANGE AT A QUARTERLY RATE) CHART 32: RETAIL PRICES (% CHANGE AT A QUARTERLY RATE)
1.5 1.5

1 1

0.5 0.5

0 0

-0.5 -0.5

-1 -1
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Labour Product Price Purchase Costs Retail Prices

Page | 6
CONTACTS
Alan Oster, Group Chief Economist
Alan.Oster@nab.com.au
+613 8634 2927

Riki Polygenis, Head of Australian Economics

riki.polygenis@nab.com.au
+61 475 986 285

Tony Kelly, Senior Economist

antony.kelly@nab.com.au
+61 3 9208 5049

Important Notice
This document has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB"). Any
advice contained in this document has been prepared without taking into account your objectives, financial situation
or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is
appropriate for your circumstances.
NAB recommends that you obtain and consider the relevant Product Disclosure Statement or other disclosure
document, before making any decision about a product including whether to acquire or to continue to hold it.
Please click here to view our disclaimer and terms of use.

Page | 7
APPENDIX: LIST OF SERIES AVAILABLE TO SUBSCRIBERS^

MONTHLY BUSINESS SURVEY*

Business Confidence Net balance
Business Conditions Net balance
Trading Conditions Net balance
Profitability Net balance
Employment Net balance
Forward Orders Net balance
Stocks Net balance
Exports Net balance
Capital Expenditure (Capex) Net balance
Cash Flow Net balance
Labour Costs % change at quarterly rate
Purchase Costs % change at quarterly rate
Final Prices % change at quarterly rate
Capacity Utilisation Per cent
Borrowing Demand & Conditions %; net balance
All series available on an industry basis for:
Mining
Manufacturing
Construction
Retail trade
Wholesale trade
Transport / Utilities
Finance / Property / Business Services
Recreation / Personal Services

All available on a state basis for:

New South Wales
Victoria
Queensland
WA
SA/NT
Tasmania

*All data available in original, seasonally adjusted and trend terms.

^Subscribers also receive a copy of the Subscriber details publication which contains a variety of extra charts and tables.

Page | 8
QUARTERLY BUSINESS SURVEY*
Business Confidence Margins (current, next 3 mth)
Business Conditions (current, next 3 mth, next 12 mth) Overheads (current, next 3 mth)
Trading conditions (current, next 3 mth, next 12 mth) Productivity growth
Profitability (current, next 3 mth, next 12 mth) Number of employees
Employment (current, next 3 mth, next 12 mth) Hours worked
Forward orders (current, next 3 mth) Gross Sales
Stocks (current, next 3 mth) Output/sales growth (current fiscal year)
Export orders (current, next 3 mth) Average earnings (current fiscal year)
Capital expenditure (current, next 3 mth, next 12 mth, fiscal
year) Short term interest rate
Required rate of return on investment Exporters hedged FX exposure (%)
Cash flow Importers hedged FX exposure (%)
Labour costs (current, next 3 mth) Months hedged (exporters)
Purchase costs (current, next 3 mth) Months hedged (importers)
Final prices (current, next 3 mth) Favourable hedge position (% of exporters)
Capacity Utilisation Favourable hedge position (% of importers)
Borrowing index (current, next 3 mth) Affected vs not affected by AUD
Response to AUD (downsized, reduced, overheads,
hedging, import substitution, focus on domestic market,
Borrowing demand (current, next 3 mth) other, don’t’ know)
Driver of trading conditions (demand, wages/jobs, house
Constraints on output (demand, labour, materials, premises & prices, rates, exchange rate, tax/govt policy, seasonal,
plant, finance/working capital) finance/working capital, company specific, other)
What will improve confidence (lower rates, more suitable
labour, easier funding, government policy, higher
Constraints on profit (capital, demand, high AUD, low AUD, demand, higher AUD, lower AUD, easier compliance,
interest rates, labour, tax, wages, energy costs, other) other)
Constraint on employment (demand, confidence, cashflow,
suitable labour, high wages, government policy, labour not at
full capacity, other, don’t’ know)
All series available on an industry basis for:
Mining (sub-groups: Mining Extraction, Mining Services)
Manufacturing (sub-groups: food beverage & tobacco, textile clothing footwear & leather, wood & paper product, printing
publishing & recorded media, petroleum coal chemical & associated products, non-metallic mineral product, metal product,
machinery & equipment, other)
Construction (sub-groups: Residential Building, Non-residential Building, Other Construction, Construction Services)
Retail trade (sub-groups: Food, Personal & Household Goods, Motor Vehicle Retailing & Services, Other Retail)
Wholesale trade
Transport / Utilities
Finance / Property / Business Services (sub-groups: Finance, Insurance, Services to Finance & Insurance, Property Services,
Business Services)
Recreation / Personal Services (Sub-groups: Motion picture, Radio & Television Services, Libraries Museums & the Arts), Sports
& Recreation, Personal Services, Accommodation Cafes & Restaurants, Health Services, Education, Other Services)
All series available on a state basis for:
New South Wales
Victoria
Queensland,
WA
SA/NT
Tasmania
*Data available in original, seasonally adjusted and trend terms.

Page | 9