Australian business conditions fall in May, business sentiment eases to 6.2

Australian business conditions dropped in May, although they continue to be high by historical standards. The weaker tone to the report was seen in widespread falls throughout the component indices.

Business conditions eased to 15 in May from the record 21 seen in April. The fall leaves conditions till well above long run average levels implying that the economy and the labor market continue to be in good shape.

Business sentiment also eased in the month after recording a recent high in January. It is now close to long-run average levels. While the relationship between sentiment and other real economy indicators is not as close as it is in the case of the conditions index, this index deserves watching given the potential for declining sentiment to be a drag on investment plans. This is especially the case in the current environment of deteriorating global trade relations.

The fall in the headline conditions index was seen in a softening of several component indices. Business profitability, employment conditions and capacity utilization all dropped in the month, although like the headline index they continue well above long run averages. They all continue to imply ongoing rebound in the labor market in the near term, noted ANZ in a research report.

Industry wise, the mining sector recorded the strongest conditions. The transport sector rebounded, while conditions in recreation & personal services, wholesale, manufacturing and construction declined. Retail conditions rebounded marginally but continue to be lower than their long run average.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was neutral at 16.3848, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 57.2902. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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