Australian business activity remains strong in August survey

SYDNEY (Reuters) – Australian business sentiment rose in August for the first time in two months. Sales remained surprisingly strong in the face of rising interest rates and high inflation, while intense cost pressures also showed signs of cooling.

The National Australia Bank (NAB) (NAB.AX) survey on Tuesday showed business sentiment rose 1 point to +20 in August, well above its long-term average.

Confidence increased by 2 points to +10, above the long-term average.

“Overall, the survey shows demand will remain strong through August,” said Alan Oster, chief economist at NAB Group.

“We continue to expect inflation and rising interest rates to eventually start weighing on household budgets,” he said. “But so far, this dynamic doesn’t seem to have taken hold.”

Rising inflation has prompted the Reserve Bank of Australia (RBA) to raise rates five times since early May, raising them by 225 basis points to 2.35% and warning further ahead.

The market thinks the RBA may slow down a bit from here, and is leaning toward a quarter-point move in October.

The NAB survey’s purchase cost measure showed some easing to 4.4% in August from a record high of 5.3% in July. Labor cost growth also slowed from 4.5% to 3.5% on a quarterly basis, while retail price growth slowed to 3.3%.

The survey continues to show resilience in demand, with August sales up 4 points to a very strong +30, the highest in over a year.

Corporate capacity utilization remained flat, just below a record high of 86.3%.

Profitability fell 2pts to a still strong +16 and the employment index fell 2pts to +16. The unemployment rate fell to his 48-year low of 3.4% in July, according to official data.

Another consumer survey conducted by Westpac showed a recovery in confidence in early September, thanks in part to a stronger labor market.

Reporting by Wayne Cole Editing by Sri Navaratnam

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