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Business Conditions Cool From Historic High

More good news on the economy from the latest business conditions and confidence survey from the National Australia Bank, even if there was a sign of a cooling.

The NAB said its business conditions index fell 6pts to +15 index points, easing back from all time historical highs seen in April, while the business confidence index fell 5pts to +6 index points, to be around its long-run average level.

The NAB said its survey showed that conditions eased across most industries in May, with the exception of transport & utilities and retail. But overall conditions remain at or above average levels.

In trend terms, the BAB said conditions remain strongest in mining as business profits for the March quarter in last week’s national accounts confirmed.

Reserve Bank Governor, Phil Lowe will have something to say on the economy in a major speech in Melbourne later today, hours ahead of the rate rise expected from the US Federal Reserve.

According to Alan Oster, NAB Group Chief Economist “Despite the easing in the business conditions index in May, conditions remain robust in the business sector. Conditions remain well above average across most states and industries.”

“Some comfort is provided by the improvement in retail conditions in May after turning negative last month, though as suggested by the survey for some time, the retail sector continues to lag conditions in most other industries” Mr Oster said.

Trading conditions (sales), profitability and employment conditions reversed their gains made in April but all remain at a relatively high level.

According to Mr Oster “While the employment index dropped in May, following a strong result in April, it remains above average and suggests a solid pace of employment growth over coming months.

"Overall the survey continues to suggest an improvement in labour market conditions going forward, which we would expect to translate to a gradual pick-up in wage growth over the next year.”

But he warned that while the survey "continues to suggest a relatively robust economy, it indicates relatively subdued outcomes for both wages and inflation growth. Both of these variables remain key to the outlook for monetary policy in 2018.”

“Evidence of a genuine pick-up in wages growth and a flow-through to inflation more broadly will provide a launch pad for the RBA to begin lifting rates from current record lows.

“We don’t expect this to occur until May 2019, as while the survey continues to point to a growing economy, strength in employment and a decline in the unemployment rate, these factors are yet to materialise in a significant pick-up in wages” Mr Oster said in yesterday’s statement from the NAB.

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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