MNI ANALYSIS:Australia NAB Survey Shows Retail Conditions Soft

--Retail Sector Remains Main Area of Concern; Construction Conditions Highest

By Sophia Rodrigues

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

conditions remained elevated and confidence improved slightly but the retail

sector remains a headwind for the economy and for the Reserve Bank's household

spending outlook.

     The September survey, published Tuesday, showed business confidence

improved from a sharp decline in August while conditions were unchanged at +14

and close to multi-year highs. Conditions were supported by the construction

industry which was a result of high infrastructure spending but retail continues

to the main exception with trend conditions at -5 points.

     Within the retail sector, forward orders, employment conditions, capital

expenditure intentions were all in the negative while labor costs remained soft.

The only exception was rise in retail prices in quarterly terms but that still

pointed to a soft consumer price inflation.

     The data raises concerns about the outlook for household consumption which

is key to the RBA's growth and inflation outlook for the economy. It points to

the cash rate remaining on hold for longer, with small possibility of a cut if

the outlook worsens and is not offset by other drivers of growth and inflation.

     Other aspects of the business survey were slightly positive with employment

conditions still pointing to a solid growth in jobs despite some pullback in

September. Labor costs rose and retail prices moved to positive territory.

     Forward orders eased a little but still suggested solid non-mining demand,

with forward orders highest in construction in trend terms.

     NAB chief economist Alan Oster Business conditions suggests watching the

trend in business confidence. "Business conditions at these levels tell us that

the business sector in Australia is doing very well. We have certainly seen that

reflected to some degree in areas like corporate profits and jobs growth, but

other aspects of the economy - such as business investment - have been somewhat

disappointing in comparison. In that context, it will be important to keep an

eye on the recent softer trend in business confidence".

     Table from the September survey:

                                          September  August

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

Business Confidence                              +7      +5

Business Conditions                             +14     +14

Employment                                       +7     +10

Profitability                                   +17     +15

Trading                                         +19     +18

Exports                                          -1       0

Forward Orders                                   +3      +4

Stocks                                           +5       0

Capital Expenditure                              +9      +8

Retail Prices (quarterly rate %)               +0.3    -0.1

Labor costs (quarterly rate %)                 +1.0    +1.2

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

Capacity Utilization (%9                       81.6    81.6

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

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