THE NAB Business Survey report for September suggests solid levels of activity in the non-mining economy, but points to relatively patchy conditions at the industry level.
The major services sectors remain the clear out performers, while more subdued conditions in industries like retail are a disappointing result that warrants close monitoring over coming months. Nevertheless, confidence levels remain somewhat encouraging across most industries, suggesting a degree of resilience to external uncertainties.
Beyond the near-term, however, the outlook is uncertain, particularly as the impetus from resource exports and the housing construction cycle start to fade.
The headwinds, and persistently low inflation, are still expected to prompt the RBA to make two more 25bp cuts to the cash rate in H2 2017, to help firm up growth and stabilise the unemployment rate.
The survey is still consistent with reasonable performance of the non-mining economy, although momentum has eased from earlier in the year.
According to NAB's Chief Economist, Alan Oster there was no hint that the RBA's interest rate cut in early August had any further material impact on confidence in September after seemingly providing some support in August.
"Business confidence is in line with its long-run average and while we would like to see confidence at even higher levels as a precursor to stronger non-mining business investment, this is still a good outcome given numerous uncertainties facing business, especially from offshore."
According to Mr Oster business conditions have been consistently above their long-run average since early 2015, suggesting the recovery through the non-mining economy has become more entrenched.
However, the strength in business conditions has once again become more heavily skewed towards major services industries after some promising signs of a broad-based recovery earlier in the year.
"The re-weakening in employment conditions is disappointing, although employment conditions remain in marginally positive territory consistent with adequate employment growth," Mr Oster said.
Meanwhile, the survey's leading indicators continue to point to solid prospects in the very near-term.
In particular, forward orders jumped notably and have been in positive territory for most of the year. However, NAB's measure of capacity utilisation eased back below the long-run average in September.
"Beyond the near-term, we still expect the economy to slow into 2018. Ongoing low inflation combined with a more subdued growth outlook is expected to jolt the RBA into action, cutting the cash rate by 25bp two more times in H2 2017," Mr Oster said.