January 30, 2018 / 6:54 AM / in 24 days

Australia business conditions strong in December, confidence grows: survey

SYDNEY (Reuters) - Australian business conditions remained buoyant in December with both profits and sales healthy, while a pick up in confidence was positive for the investment outlook, a survey reported on Tuesday.

National Australia Bank’s index of business conditions held steady at a seasonally adjusted +13 in December, staying well above the long-run average of +5.

The survey’s measure of profitability ticked up a point to +15 in December, while its sales index rose a point to +18. Its often volatile measure of business confidence bounced 4 points to +11, the highest reading since July.

“This has helped to narrow the perplexing gap between business conditions and confidence evident over the past couple of years, and is an encouraging signal for investment,” said NAB group chief economist Alan Oster.

NAB’s survey of more than 400 firms had also been running much hotter than measures of household confidence, though that has changed in the past month or so with the consumer mood brightening amid strong jobs growth.

The NAB measure of employment did dip a point to +6 in December, but that still points to strong jobs growth of around 300,000 a year.

Among sectors, construction firms reported booming conditions thanks to strength in public investment and housing, while mining had stopped being a drag on conditions and was now enjoying above-average activity.

The retail industry, however, remained in the doldrums due to intense competition and was the only sector to report negative conditions at -2.

“Final retail prices also weakened sharply in December into negative territory, and are running at a slower rate than labor costs and purchases costs, pointing to margin compression,” said Oster.

The drop in prices could point to a downside risk for the government’s fourth-quarter inflation report due on Wednesday.

Reporting by Wayne Cole; Editing by Shri Navaratnam

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