Australia’s business conditions weaken in August, business sentiment improves

Australia’s business conditions weakened again in August; however, it continued to stay above the long run average while business sentiment rebounded. The NAB report that was released today came in slightly mixed. Business sentiment rose; however, conditions eased a bit. A marked improvement was witnessed in construction and mining in August that was countered by weaker conditions in manufacturing and retail.

Capacity utilization declined a bit, along with business profitability, which fell to 4, and trading conditions that dropped to 12. Meanwhile, forward orders and employment remained stable. The retail prices index softened and was up only 0.1 percent in sequential terms in August, whereas labor cost index was up 0.7 percent quarter-on-quarter, a tad more rapid that the 0.6 percent quarter-on-quarter seen in July.

NSW drove weaker business conditions, with a severe decline in business conditions to 7 from 14 and no change in business sentiment. Confidence and conditions both weakened in South Australia as well. The mining states appear to be indicating certain signs of stabilization consistent with view that the drag from mining is beginning to ease. Admittedly business conditions in the mining sector rebounded to -13 in August from July’s -49.

In all, this survey is in line with the view that the Australian economy is in a sound shape and that the drag from the mining is beginning to wane. However, the softness in the NSW business conditions in August is disappointing and an important factor to observe in the months ahead, said ANZ in a research report.