ANALYSIS: NAB Survey Shows RBA Consumption Worries to Linger

--Survey Indicates Renewed Softening in Retail Conditions, Prices

By Sophia Rodrigues

     SYDNEY (MNI) - National Australia Bank's monthly business survey showed

conditions and confidence remain elevated but a renewed softening in retail

conditions and prices show the Reserve Bank's top concern about household

spending and subdued retail inflation are unlikely to dissipate.

     This means risks to growth and inflation forecasts in the RBA's recent

quarterly Statement on Monetary Policy remain to the downside -- unless the

strength in business conditions results in stronger overall economic growth.

     NAB's July business survey published Tuesday showed business conditions

were three times the long-run average and business confidence improved to twice

the long-run average. 

     But details in the survey were not as strong -- with profitability the only

measure to improve in July. Employment conditions were unchanged, trading eased

slightly, exports turned negative and forward orders fell.

     One big concern was a retreat in retail conditions with this sector once

again the worst performing in the survey. Also worrying was a weakening in price

and wage measures with retail prices once again turning negative and labor costs

slowing.

     Leading indicators were also less upbeat with capital expenditure falling

and forward orders softening and capacity utilization unchanged.

     NAB's chief economist Alan Oster said the persistent strength in employment

conditions has made him a little more optimistic about the near-term outlook for

the labor market but there are still longer-term challenges to domestic demand

-- which will have implications for the labor market.

     "We remain apprehensive about how the disconnect between the business and

consumer sectors will be resolved -- especially in light of sluggish retail

conditions in July. Additionally, the previously emphasized hurdles to growth --

elevated underemployment, household debt and peaks in LNG exports and housing

construction -- remain firmly in place. These factors will weigh on the

longer-term economic outlook following a reacceleration of growth in coming

quarters from the temporary disruptions to activity seen earlier in the year,"

Oster said.

     However, Oster is of the view that the balance of risks for NAB's view for

the RBA cash rate to remain unchanged for an extended period may change if the

recent strength in employment growth and business conditions are maintained.

     Below is the table from the survey for July published Tuesday:

                                      July  June

------------------------------------------------

Business Confidence                    +12    +8

Business Conditions                    +15   +14

Employment                              +7    +7

Profitability                          +18   +14

Trading                                +20   +21

Exports                                 -1    +2

Forward Orders                          +3    +5

Stocks                                   0    +4

Capital Expenditure                     +5   +13

Retail Prices (quarterly rate %)      -0.1  +0.3

Labor costs (quarterly rate %)        +0.6  +1.1

Final products prices (qtrly rate %)  +0.2  +0.5

Capacity Utilization (%)              81.9  81.9

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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