Australia business confidence bounces even as activity sags: survey

[SYDNEY] A closely-watched measure of Australian business conditions slipped in May as sales and profits struggled, though confidence got a lift from the re-election of the country's centre-right government and the prospect of interest rate cuts.

The National Australia Bank's index of business conditions, released on Tuesday, dropped 2 points to +1 in May, leaving it well below the long-run average.

In contrast, the survey's measure of business confidence rebounded 7 points to +7 taking it just above the average.

"Business confidence saw a post-election spike in May," said NAB Group Chief Economist Alan Oster. Interviewing for the survey started on May 20, two days after a federal election saw the Coalition government returned to power.

"Expectations of rate cuts may also have helped."

There had been mounting speculation last month that the Reserve Bank of Australia (RBA) would soon cut interest rates, which it duly did at its June 4 policy meeting.

"While confidence, at least at face value was a positive outcome, business conditions deteriorated further," cautioned Mr Oster. "Trading conditions and profits are particularly weak."

The survey's measure of trading, or sales, slipped 5 points to +3, while profitability fell 4 points to -3. Forward orders also dropped a point to -3.

"Forward-looking indicators suggest that the bounce in confidence is likely to be short-lived and that conditions are unlikely to turn around any time soon," said Mr Oster.

One bright spot was a 3 point bounce in the survey's employment index to +2, which pointed to some resilience in labour demand after the official jobless rate unexpectedly rose to 5.2 per cent in April.

The RBA cited the need to push unemployment lower when it cut rates by a quarter point to 1.25 per cent, and said it would not be unreasonable to expect a further easing ahead.

Measures of inflation in the survey remained subdued while capacity utilisation edged down to 80.9 per cent.

REUTERS