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Australian business conditions bounce but confidence sags

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A closely-watched measure of Australian business conditions rose in March led by gains in sales and profitability but confidence weakened further to stay below average.

[SYDNEY] A closely-watched measure of Australian business conditions rose in March led by gains in sales and profitability but confidence weakened further to stay below average.

The National Australia Bank's (NAB) index of business conditions, released on Monday, rose three points to +7 in February.

The survey's volatile measure of business confidence - which measures expectation for conditions going forward - declined two points to zero, having been much softer than conditions in recent months.

Other forward-looking indicators showed some improvement but remained at or below average.

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Forward orders, the most reliable indicator of domestic demand, rose one point to -1 while the capacity utilisation rate nudged up to 81 per cent. The reading on employment rose two points to +7.

The labour market has been one of the strongest sectors of an otherwise mixed economy, with the jobless rate declining steadily to an eight-year trough of 4.9 per cent.

"We will continue to watch the survey closely over coming months," said NAB group chief economist Alan Oster.

"With activity having already slowed, it is important to assess whether this is temporary or has persisted into 2019 – the survey suggests this may be the case at least for Q1," Mr Oster added.

"For now the survey suggests labour market conditions have remained healthy but we are also watching this closely given it may well be a lagging indicator."

Steep falls in home prices and a tightening of lending conditions by banks have combined with subdued wage growth and inflation to darken the outlook for the economy, which slowed sharply in the second half of 2018.

The central bank had touted the strength of business conditions as one reason for optimism so March's bounce will be welcome.

The March survey's measure of sales jumped four points to +12, while profitability too gained four points to +5. 

REUTERS