What: Shares of National Australia Bank Ltd (ASX: NAB) have trended 0.3% lower today despite the bank's economics division releasing a positive report on business conditions this morning.
NAB Group Economics' latest monthly survey on business confidence showed a four index point rise in confidence levels during the month of May, to seven index points.
The highest level reported since August last year, NAB said the solid jump in confidence "has helped to turn the trend more positive" in the wake of the recent Federal Budget and latest interest rate cut by the RBA.
However, as expected, the report found confidence levels throughout the economy were mixed. Retail/wholesale and finance, business and property services, saw marginal increases, but mining confidence fell hard, to negative 30 index points.
Business conditions also improved, from four index points to seven, with NAB saying all components of the index (trading, profitability and employment) improved throughout May. However, the bank said "a meaningful recovery in employment remains absent" and it continues to forecast a mild rise in unemployment by the end of 2015.
Following recent cuts to capital expenditure forecasts in the mining and resources sector, NAB said businesses will be reluctant to grow their employee count.
So what: NAB is one of Australia's leading business banks, with market share estimates of business lending up as high as 22.8%. Therefore, good news from the business community is undoubtedly a boon for NAB, whose Australian Banking division generated over 75% of cash earnings before corporate costs last financial year.
Now what: Unfortunately, a number of leading economists continue to expect the economy to struggle as it grapples with plunging mining-related investment.
"The big picture is still one where the domestic economy is struggling to offset the impact of sharply lower mining investment – as again highlighted in the Q1 National Accounts," NAB's Chief Economist, Alan Oster, said.
Despite forecasts for a rise in unemployment to 6.4% by the end 2015, NAB now believes the RBA is done cutting interest rates. "We see the next move in rates as up – but not till late 2016 (and with a lower end point for the cash rate of around 3.5%)," Mr Oster said.
Should you buy NAB shares?
Regardless of the exact level which interest rates sit at year end, shares in NAB currently appear expensive. Therefore, now does not appear to be the right time for investors to buy shares in Australia's biggest bank by assets.
