MNI ANALYSIS: Australia Survey Shows Retail Conditions Soft

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

By Sophia Rodrigues

     SYDNEY (MNI) - Australian business conditions remained elevated and

confidence improved slightly in September, the National Australia Bank's latest

business survey showed, but the retail sector remains a headwind for the economy

and for the Reserve Bank's projection for household spending.

     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. Overall conditions were supported by the

construction industry, a result of high infrastructure spending. But retail

remains the key exception, with trend conditions at -5 points.

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

expenditure intentions were all in negative territory while labor costs remained

soft. The only positive was in retail prices in quarterly terms but that still

pointed to 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 a 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 into positive

territory.

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

with forward orders the 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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