Australian business conditions surge to nine-year high

Australian business conditions surge to nine-year high copy



Australian business conditions jumped to the highest level in more than nine years and the employment gauge surged, diminishing the likelihood of interest-rate cuts in the near term. The business conditions index — a measure of hiring, sales and profits — jumped to 16 in January from a revised 10 in December, a National Australia Bank Ltd. survey of more than 400 firms conducted from January 27 to February 3 showed. Business confidence climbed to 10 from 6, the best result in almost three years, and a gauge of employment rose to the highest level since 2011.
“These outcomes are certainly pointing to an improvement in the domestic economy after a soft patch through much of the second half of 2016,” NAB chief economist Alan Oster said Tuesday, putting his forecast for further rate cuts under review. He added that a “degree of caution” should be exercised “given the diverse and rapidly changing seasonal influences” at this time of year that may include the shift in Chinese New Year to January. The Reserve Bank of Australia closely monitors business conditions as they reflect the immediate environment firms are operating in and give a snapshot of the economy at the time. Policy makers have cut rates to a record-low 1.5 percent to stimulate industries outside mining where an investment boom is drawing to a close. The RBA has been particularly focused on trying to encourage non-mining business investment and NAB’s survey gave some grounds for optimism there as the gauge jumped 9 points to 15.
“If a true reflection of investment activity, that outcome is clearly more upbeat than other investment indicators,” Oster said. “Nevertheless, utilization rates are still at or below long-term averages for most of the major industry groups, which pose a challenge to sustaining more elevated levels of investment.” The survey showed that much of the strength was confined to New South Wales, where house prices are skyrocketing in response to low rates, and the state government is undertaking a major infrastructure works program. In contrast, most other mainland states showed only modest gains, or even a deterioration, Oster said.
Australia’s economy is dividing between east and west, where the end of a mining boom has seen people flood out of Western Australia, house prices in the state drop and unemployment rise. Meanwhile, Victoria is experiencing the highest population inflows in the country and its economy is booming along with New South Wales. The RBA last cut rates in August and has signaled it would prefer not to ease again to avoid further inflaming east coast property prices. Traders are pricing in very little chance of a rate cut this year.

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