MNI ANALYSIS: Australia NAB Survey:Employment Up,Fwd Orders Dn

--NAB Survey Suggests Forward Indicators Need Monitoring

By Sophia Rodrigues

     SYDNEY (MNI) - The National Australia Bank's business survey for July

points to rise in employment consistent with Reserve Bank's outlook but a

decline in forward indicators and retail conditions needs to be monitored

closely for signs of slowing.

     The monthly business survey, published by NAB Tuesday showed business

conditions remained above average but has eased from the record highs in April.

Business confidence remained around average levels.

     The latest survey saw a rise in employment index and suggests employment

growth of around 23,000 per month over the next six months, According to NAB,

this is enough to reduce the jobless rate by around 0.1 percentage point a

month, assuming a constant participation rate and steady population growth.

     Such an outlook is in line with the RBA which expects jobs growth to

continue, leading to a gradual decline in the unemployment rate. This is the

crux of the RBA's optimistic outlook for the economy and its expectation that

the next move in the cash rate to be up.

     However, the survey also showed decline in forward indicators and if they

weaken further in coming months, they could change the outlook for the labor

market.

     Forward orders, in particular, fell further to +1 and while they remained

around average in trend terms, they were the lowest since mid-2016. According to

NAB, the declines over recent months suggest there is some risk of a pullback in

business activity that warrants close watching over coming months.

     Capacity utilization also edged slightly lower. Profitability and trading

conditions deteriorated, and exports index hovered at zero.

     Importantly, retail conditions declined further to zero. The retail sector

is important for the RBA's inflation outlook because of the uncertainty around

the persistence of retail competition and its drag on inflation. Retail

conditions is also an indicator of household consumption and a decline suggests

outlook for household consumption might not be as solid as the RBA expects.

     All key inflation measures improved during the month but NAB still thinks

it points to generally weak inflation pressures in the economy. 

     Below is the table from the survey:

                                          July  June

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

Business Confidence                         +7    +6

Business Conditions                        +12   +14

Employment                                 +10    +5

Profitability                              +10   +15

Trading                                    +17   +21

Exports                                      0     0

Forward Orders                              +1    +3

Stocks                                      +4    +4

Retail Prices (quarterly rate %)          +0.5   0.0

Labor costs (quarterly rate %)            +1.1  +0.7

Final products prices (quarterly rate %)  +0.6  +0.4

Capacity Utilization (%)                  82.2  82.4

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

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