Business confidence improved again in July, reverting back to post-election highs. Firms still appear unfazed by the federal government’s ‘tough budget’, possibly taking comfort in the bounce back in consumer confidence. A solid jump in business conditions and better forward orders is supporting the relatively optimistic position. Stronger sales and profits are driving the trend, but the recovery continues to be relatively jobless with the employment index seeing more moderate gains (remaining at subdued levels). Higher capacity utilisation rates suggest that the improvement is relatively capital intensive.

Business conditions rose in the month to their highest level since early-2010 – implying a strong start to Q3 demand. That said, much of the improvement is narrowly based. Construction surged again, propped up by high levels of building approvals that will drive construction activity for many months. Wholesale (a bellwether industry) also improved, but remains slightly negative – and are somewhat contrary to the kick up in forward orders. Changes in conditions varied across industries, as do the levels – construction and service industries are the stand out (mining and retail are weakest). In contrast to very strong readings for sales and profits, business is still very reluctant to employ.

Our wholesale leading indicator improved, but still suggests weak underlying conditions and below trend economic growth in the second quarter of 2014 – with moderate near term growth in prospect for demand.

Read the full survey at NAB Monthly Business Survey – July 2014.