MNI POLICY: Australia NAB Survey Supports RBA Guidance

--NAB August Survey Shows Rise In Profitability, Forward Orders

--NAB Business Conditions Up But Confidence Eases

By Sophia Rodrigues

     SYDNEY (MNI) - Business conditions rose in August, with a rise in

profitability and forward orders pointing to positive outlook for the sector,

and together with improvement in price measures supporting the Reserve Bank of

Australia's guidance for the next move in the cash rate to be up.

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

showed business conditions rose in August to remain well above average level.

Business confidence, however, declined to below average level, falling 3 points

to +4.

     The rebound in business conditions was driven mainly by a rise in

profitability and forward orders. The rise in forward orders suggest positive

outlook for the business sector in the second half.

     The rise in profitability, together with elevated capacity utilization,

suggest potential for further growth as businesses are building enough internal

funding to make capital expenditure decisions when suitable projects arise. Such

an outlook is in line with the RBA's view stated in the September cash rate

statement that the non-mining business investment is expected to increase.

     The survey showed capex remains strong in the construction sector, likely

reflecting the large pipeline of residential and non-residential construction,

as well as spill-over from the large volumes of public infrastructure work.

     Capex in the retail industry was below average but investment remains

positive as some businesses reshape their model to meet the structural

challenges ahead. Overall, the retail industry remains a laggard with conditions

in negative and continues to be one area of concern for the economy and the RBA.

     Among other bright spots in the latest survey were improvements in

inflation and wage measures, thought they remained weak compared with history.

Retail prices rose 0.9% in quarterly terms compared with 0.5% rise in July.

Labor costs rose 1.3% versus a 0.9% rise the month before.

     The increase over recent months supports the RBA outlook for gradual rise

in inflation to around the mid-point of the 2% to 3% target band.

     Below is the table from the survey:

                                          August  July

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

Business Confidence                           +4    +7

Business Conditions                          +15   +13

Trading                                      +19   +18

Profitability                                +16   +10

Employment                                   +10   +10

Exports                                       -1     0

Forward Orders                                +5    +2

Stocks                                        +6    +2

Retail Prices (quarterly rate %)            +0.9  +0.5

Labor costs (quarterly rate %)              +1.3  +0.9

Final products prices (quarterly rate %)    +0.5  +0.6

Capacity Utilization (%)                    82.3  82.2

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

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