Australia business conditions resilient in July: National Australia Bank

[SYDNEY] Australian business conditions cooled a little in July after a very strong run, though firms reported solid demand for labour that could augur a pick up in jobs growth ahead.

National Australia Bank's monthly survey of more than 500 firms showed its index of business conditions dipped three points to +8 in July, off the highest since the global financial crisis but still well above the long-run average.

Its index of business confidence eased a point to +4 in July, after rising three points in June. Sales stayed strong in the month and the survey's employment index held above average at +4.

"Encouragingly, the employment component managed to hold onto the gains seen in June, suggesting ongoing employment growth," said NAB's chief economist Alan Oster.

"Despite the cacophony of events - including Brexit and the recent Federal election - that have posed a risk to market sentiment in the past month or so, firms are continuing to report positive levels of business confidence."

Mr Oster said the survey pointed to solid economic activity in the short term, with forward orders and capital expenditure both above their long-run average.

The survey was conducted ahead of the Reserve Bank of Australia's (RBA) decision last week to cut interest rates to a record low of 1.5 per cent.

Mr Oster said longer-term headwinds to the economy meant further stimulus might be needed next year, especially if the RBA wanted inflation to return to its 2 to 3 per cent target band.

Underlying inflation slowed to a record low of 1.5 per cent in the year to June, prompting the latest easing in policy.

"We now expect the RBA will need to provide further support through two more 25 basis-point cuts in May and August 2017, which should be enough to stabilise the unemployment rate," said Mr Oster.

REUTERS