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Business Conditions Rock Solid: NAB

Australian business conditions stayed rock solid in September, while confidence edged up following the big decline last month, the latest monthly survey from the National Australia Bank confirmed yesterday.

And with construction leading the way with the highest business conditions, the NAB says most industries are following close behind.

There was nothing in the NAB survey for September to justify talk from some economists that the central bank will have to start looking at rate rises any time soon.

The NAB reckons it will be the second half of next year (12 month’s time) before the RBA is looking at possible rate rises.

The bank’s Chief Economist, Alan Oster said in the statement with the survey yesterday “with the labour market poised to see further improvement going into 2018, the economy now seems better equipped to deal with the challenges it faces, which should leave the RBA with scope to commence a shift away from emergency stimulus settings by H2 2018.

“However, elevated underemployment, an elevated AUD, household debt and peaks in LNG exports and housing construction are all potential hurdles that will ensure that the RBA proceeds with caution,” Mr Oster added

That could be the view of Reserve Bank Governor, Phil Lowe’s who said in the bank’s post-October board meeting statement last week:

"The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

But while most sectors pf the economy are doing well according to the NAB, retailing continues to be the stand out exception – where conditions are at negative levels, as last week’s surprise 0.6% slide in retail sales for August indicated.

“The sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent (and sustained) rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well” according to the NAB’s Chief Economist, Alan Oster.

Overall though, the NAB says business conditions are holding at levels just a little below the peaks experienced prior to the GFC with the business conditions index holding steady at +14 index points – well above the long-run average (+5).

Confidence remains more mixed signal than conditions. The confidence index rose 2 points to +7, following a sharp deterioration last month, but that is only modestly above the long-run average for the series and the NAB says the trend appears turned down again.

NAB economists said the survey showed are generally encouraging news from the labour market, “despite a slight pull-back in employment conditions this month – including a modest upward trend in labour costs.

According to Mr Oster, “despite the pull-back in employment conditions this month, the index remains at levels that imply employment growth that is strong enough to put more downward pressure on the unemployment rate.”

Labour cost pressures (a wage bill measure) eased back a little in September, but have shown a modest upward trend in the Survey. “While this isn’t a measure of average wages, it could suggest we may soon see some modest pass-through of tighter labour market conditions to average wages.” said Mr Oster. The Survey’s other measures of inflation were mixed.

Meanwhile, the capacity utilisation rate rose this month, while the survey’s measure of capex stayed at reasonable levels. Forward orders – which appear to be giving a more accurate read on the strength of the economy – eased back, albeit still suggesting quite solid non-mining demand.

According to Mr Oster, “Business conditions at these levels tell us that the business sector in Australia is doing very well. We have certainly seen that reflected to some degree in areas like corporate profits and jobs growth, but other aspects of the economy – such as business investment – have been somewhat disappointing in comparison. In that context, it will be important to keep an eye on the recent softer trend in business confidence”.

Overall, results from the Survey are suggesting a very strong business sector in Australia but hat is yet to translate into comparative strength in the broader economy, potentially signalling on going risk aversion by firms.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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