MNI DATA ANALYSIS: Australia Biz Conditions At Record High

By Sophia Rodrigues

     SYDNEY (MNI) - Business conditions in Australia rose to the highest level

on record supporting the Reserve Bank of Australia's outlook for monetary policy

but indicators on inflation and consumer spending continues to warrant caution.

     The February business survey, published by National Australia Bank Tuesday,

showed conditions rose to +21, the highest since the monthly record began in

March 1997. Confidence, however, pulled back a little to +9 points but remained

well above historical average.

     The gains in business conditions were driven by forward orders which has

been on a rising trend for several years. At the current level, new orders point

to non-mining domestic demand growth of around 6% but NAB has warned the data

can be volatile from month-to-month.

     A bigger positive in the data was employment index which rose to a record

high at +16 points and points to jobs growth rate of up to 27,000 a month.

Interestingly, NAB's employment index had been pointing to job gains of around

20,000 a month last year when the official Australian Bureau of Statistics data

showed increase of around 33,000. Historically, NAB's employment index has

tended to lead the official data by six months and suggests that the strength in

employment growth will not be ending any time soon.

     However, other indicators in the data were subdued, though some showed some

improvement. Among them was retail where conditions rose to the highest level in

eight months but was the softest sector. Personal and recreation services has

also trended down in the last four months. Both these sectors are important for

household consumption outlook and do not yet convey an optimistic picture.

     Among inflation measures, labor costs accelerated to a quarterly rate of

1.3% in February from +0.9% in January. However, this is a wage bill measure and

the acceleration is due to growth in employment rather than rise in wage price.

Retail price growth slowed in February and final products prices were unchanged.

Both retail price and wage price outlook point to subdued consumer price index

inflation in coming quarters.

     Exports fell into the negative in February, down to -2 from +1 in January

and zero in December.

     Table from the survey: 

                                          February  January

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

Business Confidence                             +9      +11

Business Conditions                            +21      +18

Employment                                     +16       +6

Profitability                                  +21      +19

Trading                                        +27      +25

Exports                                         -2       +1

Forward Orders                                 +11       +3

Stocks                                          +1       +1

Retail Prices (quarterly rate %)              +0.2     +0.4

Labor costs (quarterly rate %)                +1.3     +0.9

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

Capacity Utilization (%)                      82.5     82.7

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

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