Australia business conditions ease, but confidence rises: Survey

National Australia Bank's monthly survey of more than 500 firms showed its index of business conditions dipped 2 points to +7 in August, though that was still above its long-run average.

By: Reuters | Sydney | Published:September 13, 2016 7:58 am
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Australian business conditions softened for a second month in August though confidence picked up following a cut in interest rates early in the month, a survey showed on Tuesday.

National Australia Bank’s monthly survey of more than 500 firms showed its index of business conditions dipped 2 points to +7 in August, though that was still above its long-run average.

Its index of business confidence rose 2 points to +6 in August, after dipping one point in July. Sales and profits edged back in the month but the survey’s employment index held above average at +4.

“The Survey still gives us confidence in the near-term outlook for the economy, even though things may have cooled a bit,” said NAB’s chief economist Alan Oster.

“It is particularly encouraging to see that firms demand for labour remains quite solid, which will hopefully have some positive flow on effects to households.”

The major service and construction industries stayed strong in the month, while wholesale and retail were weaker.

Services and home building have been underpinned by easy monetary policy, with the Reserve Bank of Australia (RBA) cutting rates to a record low of 1.5 percent early last month.

The survey’s measure of forward orders held steady at an above average +2, having been in positive territory for nine of the past 10 months.

“This outcome suggests good near-term prospects for activity,” said Oster.

Oster was more cautious on the longer-term outlook, predicting home building and resource exports would eventually cool as the benefits of a past decline in the local currency faded.

“All of these factors are expected to come to a head around 2018, and the economy will likely require additional policy support from the RBA,” said Oster, who expects two more rate cuts by mid-next year.