NAB business conditions index drops in March, but holds above historical average

The National Bank of Australia (NAB) business conditions index fell to 14 index points in March from the February figure of 20 basis points. The investors were expecting a drop to 17 index points. Despite the retreat, the index remains well above the historical average, suggesting robust business activity in Australia. Meanwhile, the business confidence index unexpectedly fell to 7 index points from 9 index points. 

Key quotes (Alan Oster, NAB Group Chief Economist)

"The employment index is consistent with a solid level of jobs growth of around 21k per month"

"While forward orders and capacity utilization – important leading indicators – declined this month, on a trend basis they both remain at multiple year highs, a positive sign for the non-mining economy, including employment and investment growth"

"While retail continues to underperform, on a trend basis it reached its highest level in nine months"

"The gradual trend rise in purchase costs provides a tentative sign of inflationary pressures, although it would need to keep rising to provide a convincing signal that core CPI inflation is about to move back within the RBA’s target band"

"The Survey results for March do not change our outlook for the Australian economy"

"We expect that towards the end of this year the RBA will be in a position to start increasing the current emergency low policy rate although it will depend heavily on the data flow – particularly for wages and inflation - and the risk is that any action by the RBA will be delayed"