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.
Understanding the 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.
An 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 positive in lieu of outright negative macroeconomic signals. 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. It is worth noting that the overall economic performance following the NAB confidence index highs and lows were neither as good or bad as the index suggested. In fact, Australia rode out the Great Recession while still seeing GDP growth year over year.
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 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.