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Australia business conditions improve, mining suffers
September 11, 2012 / 1:36 AM / in 5 years

Australia business conditions improve, mining suffers

SYDNEY, Sept 11 (Reuters) - Australian business conditions improved in August as most firms enjoyed a rebound in sales and profits, though confidence took a hit as miners fretted about falling commodity prices, a survey reported on Tuesday.

National Australia Bank’s main measure of business conditions rose 4 points in August to stand at 1, so more than recouping July’s loss.

In contrast, the index of confidence fell 5 points to stand at -2, reversing much of the improvement made the previous month. The two measures have been see-sawing for months with no clear trend emerging.

“Mining was the worst affected industry, with the weakened outlook for commodity prices crunching confidence in this sector,” said NAB chief economist Alan Oster.

Spot prices for iron ore, Australia’s single biggest export earner, have fallen by a third in the past couple of months, in part due to Chinese efforts to cut stockpiles as the economy slows.

Yet most other sectors in the survey of over 500 firms reported better times in August.

“The improvement was driven by broad-based improvements in trading conditions, profitability and to a lesser extent employment,” said Oster. “Conditions improved across most industries - with particularly strong kick ups in retail and wholesaling.”

Consumer spending got a lift mid-year from government payouts and a couple of interest rates cuts from the Reserve Bank of Australia (RBA).

The survey’s measure of sales rebounded by 7 points in August to 5, while that for profitability rose 5 points to -2. The index of employment edged up a point to stand at 0 thanks in part to a big improvement in the wholesale sector.

Measures of price pressures in the survey remained subdued, adding to evidence that there was still plenty of scope for the RBA to cut rates further if needed.

Growth in labour and product costs slowed in the month while retail prices hardly grew at all.

Oster, however, is confident enough about the economic outlook to argue that further rate cuts will not prove necessary.

“If the RBA were to lower rates again, it would most likely occur towards the end of this year following an unanticipated slowing in the labour market and domestic activity,” he said.

“The expected profile of growth and inflation implies that the RBA will stay on hold until the middle of next year.” (Reporting by Wayne Cole; Editing by Lincoln Feast)

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