What Is the NAB Business Confidence Index?

The NAB Business Confidence Index is a key measure of business confidence in Australia, published monthly and quarterly by National Australia Bank (NAB). It is a component of the bank's business survey, which covers hundreds of Australian companies to assess business conditions in the country. The index is closely watched to gauge the overall condition of the Australian economy. It has been published since 1997.

Key Takeaways

  • The NAB Business Confidence Index is a key measure of business confidence in Australia, published monthly and quarterly by National Australia Bank (NAB).
  • As part of the bank's business survey, it covers hundreds of Australian companies to assess business conditions in the country.
  • The index is closely watched to gauge the overall condition of the Australian economy and has been published since 1997.
  • The NAB Business Confidence Index is calculated on a net balance basis, meaning that surveyed companies are asked whether there is a positive or negative outlook.
  • The monthly business survey includes a variety of economic information in addition to the Confidence Index, such as the level of forward orders and capital expenditures, and the outlook on inflation.

Understanding the NAB Business Confidence Index

The monthly business survey in which the NAB Business Confidence Index appears displays a variety of information, such as how confident businesses are, what components contribute to the result, which industries are driving the conditions, the location of the best conditions, and what the survey says about inflation.

Much of the information in the survey is also graphed to provide visual data, such as capacity utilization by state, the net balance of business conditions, and the net balance of business confidence, which is the Confidence Index. Included are also forward orders and capital expenditures.

$1.36 Trillion

Australia's GDP for 2020, which is expected to increase to $1.6 trillion in 2021.

A NAB business confidence reading above zero reflects improving business confidence and a reading below zero shows falling confidence. It can be seen from the question that the responses are forward-looking, albeit short-term.

A positive reading can be interpreted as bullish for the near-term economic outlook. This outlook can benefit growth-sensitive instruments, such as the Australian dollar, in addition to Australian equities. By contrast, a negative reading can be interpreted as a warning to trim exposure to the Australian market or even as an opportunity to take bearish positions.

NAB Business Confidence Index Highs and Lows

The NAB, like many confidence indexes, trends positively in lieu of outright negative macroeconomic signals. The index reached a high of +23 in April 2021 and recorded a low of -66 in early 2020. It is worth noting that the overall economic performance following the NAB confidence index highs and lows were neither as good nor bad as the index suggested.

The confidence index is published with quite some detail behind the headline number. In the data releases, NAB provides information as to both industry and regional confidence. In this way, the NAB provides valuable market intelligence on which sectors within the Australian economy are likely to perform well in the near term.

The NAB also tries to determine what factors are affecting business confidence, and questions businesses on these with the results published in the quarterly survey.

What Is Business and Consumer Confidence?

Business and consumer confidence are both economic indicators that seek to measure the level of optimism that businesses and consumers have in an economy. Both are important indicators because businesses drive investment and employment while consumers drive consumer spending, both of which make up significant portions of a nation's economy.

What Are Examples of Leading Indicators?

Common leading indicators are durable goods orders, the Treasury yield curve, the stock market, weekly jobless claims, manufacturing jobs, and building permits. All of these indicators provide an idea of where the economy might be heading in the next few months.

What Is the Best Leading Indicator?

The best and most looked at leading indicator is gross domestic product (GDP). GDP measures the total output of a nation's goods and services, which provides insight into a nation's economic health. GDP includes consumption, government spending, investment, and net exports.