MNI DATA ANALYSIS: Australia Biz Confidence, Retail Falter

By Sophia Rodrigues

     SYDNEY (MNI) - The Australian business survey for November released Tuesday

showed construction and retail sentiment at opposite ends of the spectrum but

their ultimate effect on wage growth and inflation will determine how the

Reserve Bank of Australia's monetary policy evolves in the coming year.

     For now, the risks remain slightly skewed to the downside because retail

inflation seems non-existent and signals a soft outcome for the Q4 consumer

price index. Prices remain soft for personal services, too, suggesting that

cautious spending behavior by households is continuing. 

     Unless growth in the construction sector is strong enough to offset the

downside risk from household consumption and leads to stronger employment and

acceleration in wage growth that passes through to overall inflation, there is

still a risk that the RBA could be forced to lower the cash rate again.

     Data published by National Australia Bank on Tuesday showed that sentiment

on business conditions pulled back from the record high touched in October.

Business confidence also fell, prompting NAB economists to warn that they are

closely watching softening trends in the data.

     The survey showed sentiment in the retail sector fell back into negative

territory in November and, according to NAB economists, trends in the retail

sector and overall business confidence need to be watched closely as both can

have significant implications for the outlook.

     For now, NAB chief economist Alan Oster said he is maintaining his outlook

for two RBA cash rate hikes next year but with a caveat that the labor market

and wages must improve further.

     A clear standout in the survey was the construction sector, the only

industry where sentiment on conditions didn't fall in November. This industry

continues to see the benefits of  a large residential property pipeline,

infrastructure spending and an apparent lift in non-residential construction.

     Forward orders rose in November with mining showing an especially large

rebound.

     The disappointment was the retail sector, where trend conditions fell to

-2, though confidence was slightly positive. In the retail industry, spare

capacity was above normal, cash flow was weak, employment remained soft and

price inflation was absent. One positive in retail was an improvement in forward

orders, which was likely the reason for the positive confidence level.

     Table from the survey: 

                                          November  October

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

Business Confidence                             +6       +9

Business Conditions                            +12      +21

Employment                                      +7       +7

Profitability                                  +15      +26

Trading                                        +16      +30

Exports                                         +2       -1

Forward Orders                                  +6       +3

Stocks                                          +2       +2

Capital Expenditure                            +14      +10

Retail Prices (quarterly rate %)              +0.2     +0.2

Labor costs (quarterly rate %)                +1.2     +0.8

Final products prices (quarterly rate %)      +0.3     +0.4

Capacity Utilization (%)                      81.7     81.7

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

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