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.

BREAKING DOWN 'NAB Business Confidence Index'

The NAB Business Confidence Index is calculated on a net balance basis. This means that surveyed companies are asked whether there is a positive or negative outlook — the specific question is "Excluding normal seasonal changes, how do you expect business conditions facing your industry to change in the next three months?" — and the result calculated as positive less negative responses, which is the net balance. Thus, a balance above zero reflects improving business confidence and below zero, falling confidence. It can be seen from the question that the responses are forward-looking, albeit short term. A positive outcome can, therefore, be regarded as positive for the near-term economic outlook. This, in turn, may benefit growth-sensitive instruments, such as the Australian dollar.

The average in the index since 1997 has been just over +6. It reached a high of +21 in April 2002 and recorded a low of -30 in October 2008, in the wake of the global financial crisis.

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. For example, in April 2018, NAB noted that mining and construction showed the most positive business confidence trends while finance, property and business were least positive. Geographically, Tasmania and Western Australia were the states that showed the highest business confidence, and Victoria the lowest (although still a positive balance). NAB also tries to determine what factors are driving business confidence, and questions business on these with the results published in the quarterly survey. NAB noted for example in the March 2018 quarterly survey that margins, wage costs and government policies and regulations had the largest impact on confidence at that stage.

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