What Business Conditions Could Mean for the Economy

In 2019, we’ve seen some volatility throughout the markets, predominantly from tech stocks, such as Apple. House prices have also been down since the beginning of 2018, and we’ve seen this reflected in the current state of the Australian economy. Some believe we’re just going through a slight correction and the markets and economy will be back on track soon.

But we haven’t had a recession in over 25 years…

Some of us have never been through a recession.

And while most of the Western world went through one after the GFC…Australia didn’t.

So we’re leaning towards the notion that the economy will not correct itself in the next six or so months.

Why? Because every week it seems more news comes out about the economy and without a doubt, it’s never good news.

Business conditions in the last six months

Just take a look at this chart released, just this week, by Westpac:

Change in business conditions in over 6 months
Source: Westpac Bank

How did Westpac come up with this graph? Well, it’s thanks to the National Australia Bank business survey.

The survey is a barometers of the country’s current economic performance.

And in the graph above, you can see that the conditions have been sharp declines for quite some time, especially in the last six months.

What does the business survey show us?

It is an indicator for current unemployment rates, as well as the current vibes businesses are feeling. As well as the activities happening day-to-day.

The results were mixed. While business conditions — a composite measure of trading conditions, employment expectations and profitability — are currently sitting at average levels last seen when the survey began in the late 1990s.

But that doesn’t mean that confidence is at moderate levels.

Confidence is low, and sitting below trend levels.

This doesn’t really clarify what businesses are seeing right now, but it does show a sharp drop in both conditions and confidence.

So what does this mean for the economy?

Well, it shows a loss in momentum.

If we go back to the graph above, we can see that only on two other separate occasions, 2000 and 2008, have business conditions dropped lower than where they currently sit now. And we all know what happened in 2008.

Andrew Hanlan, Senior Economist at Westpac Bank, states that the decline is along the lines of what we’ve seen in the last 12 months. A weakening global economy, housing and broad economic indicators. He said:

The slowing of the Australian economy is centred on housing and the consumer

Retail sales all but stalled over the second half of 2018, as weak wages growth, high debt levels and falling house prices impacted.

Dwelling approvals collapsed late in 2018 as the housing downturn gathered pace after lending conditions were tightened further.

The global economy also lost momentum during 2018 with trade slowing and uncertainty increasing.

But the good news is that in both the 2000 and 2008 falls, the market and economy rebounded, helped by the monetary settings from the RBA.

So don’t be too surprised if we see another rate cut by the end of the year.

The economy can be fickle, so only time will tell the direction it decides to go.

This week in Markets & Money

In Monday’s Markets & Money, Selva asks readers the question: ‘So, you decide to go to an ATM to get cash…but the ATM isn’t working either. You try another one, and the same happens. Banks are closed. What do you do?’ This is something that recently happened to the people of Venezuela. So what could be the answer to never having to face this situation? Cryptocurrency.

In Tuesday’s Markets & Money, Selva looks at the future of connectivity. Roughly 88% of Australians have a smart-phone, yet only 22% of us are happy with our 4G capabilities. But 5G is on the way, and that could change our lives in a way that smart-phones already have. And not just our lives, but bigger institutions like the military.

On Wednesday, Selva discussed the current state of economies around the world. Take Australia, for example. We’ve generally had a strong economy, one that rode out the GFC and was seen as one of the best globally. But we’re slowly seeing a slowdown in our economy, as wages continue to lag and a slowing property market.

In Thursday’s Markets & Money, Selva writes about the future of electric vehicles. The idea of an EV is a promising one. Less emissions, cleaner for the environment, cost effective in the sense that you don’t need to fuel up. But the one concern is distance. You need to charge your car to keep it running, but what if you’re on a road trip and you receive a warning that your battery is running low and there’s nowhere to plug your car in, what then?

In Friday’s Markets & Money, Selva discusses where the housing market might be heading. If you look over the recent figures it’s all pointing to a downward trend. And it doesn’t help that wages haven’t increased in quite some time. Add onto that tighter credit lending and Selva doesn’t see any other way for property pieces to go but down.

Kind regards,

Alana Sumic,
Editor, Markets & Money

We believe Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and  big risks could be that you might not be aware of. In Markets & Money, you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course, a whole lot more.

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