MNI DATA ANALYSIS: Australia Biz Confidence Up But Orders Ease

--Retail Prices Fall into Negative Territory

--NAB Adds Property Market as Additional Risk to RBA Hike View

By Sophia Rodrigues

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

since July, helping narrow the gap between conditions and confidence, and

pointing to an encouraging investment environment. However, a pullback in

forward orders suggest economic activity may not accelerate as much as

confidence and conditions suggest.

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

showed confidence rose 4 points to +11, the highest since July. Business

conditions was unchanged at +13 but remained well above the long-run average of

+5.

     Forward orders eased to +4 in December from +6 in November. According to

NAB, this indicator has been giving a fairly accurate read of domestic

non-mining activity compared with business conditions, and it suggests domestic

demand accelerated in the final quarter of 2017 and the momentum is likely to

continue in early 2018.

     Once again, the survey showed construction was the bright spot in the

economy while retail was the underperformer. Business conditions in retail was

negative, both in trend and seasonally adjusted terms. Profitability and trading

were mildly negative but the biggest worry was strongly negative employment

conditions. Another disappointment was a sharp weakening in final retail prices

which fell into -0.4% in quarterly terms compared with +0.3% in November.

     Overall employment conditions eased a little in December and according to

NAB it implies employment would grow at a much slower pace of around 20,000 per

month compared with a growth of around 35,000 per month in 2017 according to the

official Australian Bureau of Statistics data.

     How far this employment growth results in drop in jobless rate and

acceleration in wage growth is important for the Reserve Bank of Australia's

monetary policy outlook. For now, the risk is for a hold-for-longer cash rate

despite market pricing showing 20% chance of a 25bps hike in May.

     NAB economist Alan Oster has maintained his outlook for two RBA cash rate

hikes in the second half of this year but has now added property market as an

additional risk to this outlook. Previously Oster said the RBA will hike only if

the labor market and wages improve further.

     But this month Oster said softer trends in the property market may make the

RBA cautious and he maintains his expectation for the first RBA hike to come in

the second half of this year, "but only if the labor market and wages improve

further and the property market holds steady."

     Table from the survey: 

                                          December  November

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

Business Confidence                            +11        +7

Business Conditions                            +13       +13

Employment                                      +6        +7

Profitability                                  +15       +14

Trading                                        +18       +17

Exports                                          0        +2

Forward Orders                                  +4        +6

Stocks                                          +1        +2

Retail Prices (quarterly rate %)              -0.4      +0.3

Labor costs (quarterly rate %)                +0.8      +1.2

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

Capacity Utilization (%)                      82.2      81.7

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

[TOPICS: MTABLE,MALDS$,MMLRB$,M$A$$$,M$L$$$,MT$$$$]