January 28, 2014 / 12:30 AM / in 4 years

Australia business conditions jump in Dec -survey

SYDNEY, Jan 28 (Reuters) - A measure of Australian business conditions jumped to its highest in more than 2-1/2 years in December as sales and profitability improved markedly, while confidence held steady at long-run average levels, a survey found on Tuesday.

National Australia Bank’s survey of more than 400 firms found the surprising turn in conditions was underpinned by a low interest rate environment, higher asset prices and a softer Australian dollar.

The report’s index of business conditions rose 7 points to +4 in December, with its measure of sales and profitability both surging 10 points. The employment measure also improved but still implied a flat labour market.

Its main measure of business confidence was steady at +6, consistent with its long-run average.

“Most industries recorded improved conditions for December - especially transport, wholesale and the services industries more generally - but, manufacturing and construction were both notable exceptions,” said NAB’s chief economist, Alan Oster.

Oster said the sustainability of the jump may be questionable given subdued forward orders, a run-down in inventory and still-low capacity utilisation. He also said employment conditions remained soft.

Still, the jump in business conditions should be welcome news to the Reserve Bank of Australia (RBA) which has been counting on a revival in business investment to offset the drag from a cooling mining boom.

The central bank cut interest rates to a record low of 2.5 percent back in August and has been holding steady since amid signs the stimulus was slowly working through the economy.

Oster still believes that rising unemployment will lead the RBA to cut rates again, albeit not until late 2014.

“The combination of near-term better business conditions and especially the unexpectedly strong Q4 underlying inflation print has caused us to move our next rate cut call from May to November,” he said.

He noted there was little sign of inflationary pressure in the NAB survey, with labour and purchase costs holding steady. (Reporting by Ian Chua; Editing by Eric Meijer)

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