Business confidence jumps in September as lockdown ends

  • By Zilla Efrat

Business confidence rebounded strongly in September on the back of large shifts in confidence in NSW and Victoria following their announcement of reopening roadmaps and rising vaccination rates across the country, according to the latest NAB business survey.

Confidence is well above its long-run average, after falling well into negative territory in prior months after business conditions deteriorated significantly across all states, particularly NSW and Victoria, due to lockdowns.

It rebounded 19pts to +13 index points in September, with NSW (up 42pts to +27 index points) and Victoria (up 16pts to +5) driving the shift. Other states fell back somewhat.

Recreation and personal services, wholesale trade, and retail – some of the sectors worst affected by lockdowns – all saw a significant confidence boost, as did construction.

“Still, confidence generally reflects hope rather than reality and the prospect of full reopening remains in the future,” says NAB chief economist Alan Oster.

“Overall, the economy has shown considerable resilience through the most recent round of lockdowns – supported by policy and adaptations learned through past lockdown experiences – but this resilience may be wearing thin.

“Firms are now focused on the promise of a rebound in activity when vaccination targets are met and restrictions are lifted in October and November. A strong rebound remains likely, although questions remain around consumer behaviour and policy settings as the country shifts to ‘living with COVID’.”

Oster says interpreting this month’s results really depend if you are an optimist or a pessimist.

“Businesses are really looking forward to reopening, and confidence increased markedly on the back of NSW and Victoria’s reopening roadmaps. The rise in confidence suggests they see the roadmaps that have been announced as sufficient to allow activity to really rebound in the coming months.”

Business conditions fell 9pts to +5 index points in September, continuing a rapid decline from record highs pre-lockdown. The decline in conditions was shared across trading (down 10pts), profitability (down 13pts) and employment (down 8pts) and all states saw a fall, with large drops in NSW (down 16pts), SA (down 13pts), Victoria (down 11pts), and Tasmania (down 9pts). Conditions in the recreation & personal services sector fell 26pts.

Capacity utilisation also fell significantly, from 80.1 per cent in August to 78.4 per cent in September. Capacity utilisation is now almost 7 percentage points below its pre-lockdown peak of 85.2% (reached in April 2021). Forward orders also fell 7pts to turn negative at -1 index points.

“There was a large hit to capacity utilisation in September which is now well down from its pre-lockdown peak,” says Oster. “That is a further sign of the significant slack in the economy as everyone waits for lockdowns to come to an end.”

He notes that if we look back at past lockdowns, confidence has tended to rebound in advance of reopening, with an improvement in conditions following.

“Our expectation would be for that pattern to repeat this time. With NSW achieving its 70 per cent vaccination target and further thresholds expected to be achieved in coming weeks, the economy is well placed to recover in October and November as activity is allowed to restart.