October 10, 2017 / 12:30 AM / in 12 days

Australia business activity holds strong despite retail woes-survey

SYDNEY, Oct 10 (Reuters) - A measure of Australian business conditions held at its highest since early 2008 in September, with strength in construction and mining lifting sales and profits even as the retail sector struggles with cautious consumers.

National Australia Bank’s survey of more than 400 firms showed its index of business conditions stayed at +14 in September, almost triple its long-run average of +5.

The survey’s often volatile measure of business confidence also rebounded by 2 points to stand at +7.

The upbeat outcome stands in stark contrast to the mood of consumers, which is portrayed as persistently dark by surveys and resulted in a shock slump in retail sales during August.

“The construction industry is currently leading the way with the highest business conditions, although most industries are following close behind,” said NAB group chief economist Alan Oster.

“Retail continues to be the main exception, with negative conditions continuing to raise doubts about the possibility of an imminent rebound in consumer spending – although tough competition and other margin pressures are likely underpinning the result as well.”

Household spending accounts for around 56 percent of annual economic output (GDP) so an extended bout of weakness could weigh on overall growth even if businesses fares better.

Policymakers at the Reserve Bank of Australia (RBA) have fretted that spending would be undermined by slow wage growth amid very high levels of household debt.

RBA Governor Philip Lowe last month said the central bank was well aware that consumption would be very sensitive to higher interest rates and would take that into consideration in future monetary policy.

Businesses, however, seem to be faring well enough. The NAB survey’s measure of sales ticked up a point to an historically high +19 in September, while profitability rose 2 points to +17.

NAB’s measure of capacity utilisation edged up to 81.9 percent which, combined with a rise in capex intentions to +9, augured well for a much-needed revival in business investment.

The employment index dipped 3 points to +7, but that remains strong historically and points to continued jobs growth ahead, said Oster.

“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,” he said.

If that pans out, the RBA could be ready to raise interest rates in the second half of 2018, said Oster. (Reporting by Wayne Cole; Editing by Sam Holmes)

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