Australian business conditions slips in February

[SYDNEY] A closely-watched measure of Australian business conditions eased in February, dragged by falls in profitability and sales and pointing to cooling growth ahead, although the employment index was surprisingly resilient.

The National Australia Bank's index of business conditions, released on Tuesday, slipped 3 points to +4 in February, below the long-run average of +6.

The survey's volatile measure of business confidence declined 2 points to +2, having been much softer than conditions in recent months.

NAB said the February survey was based on a larger sample and was conducted well after the January holiday period when global investment markets were volatile.

Forward orders, the most reliable indicator of domestic demand, slipped 4 points to -2 in the latest survey while the reading on employment held at +5.

The labour market has been one of the strongest sectors of an otherwise mixed economy, with the jobless rate declining steadily to a 6-1/2-year trough of 5 per cent.

"Leading indicators of the labour market will be important over the next few months as we assess the lags between output and employment," said NAB Group chief economist Alan Oster.

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 February's dour data will be unwelcome. It will also add to views a rate cut is needed to boost economic growth and inflation.

Investors have already narrowed the odds on a cut in interest rates this year. RBA Governor Philip Lowe also tempered a long-held tightening bias last month and said an easing could be just as likely as a hike.

The February survey's measure of sales dipped 2 points to +8, while profitability stumbled 4 points to +1.

Retail was again the worst performing sector while construction saw a particularly sharp decline in conditions.

Conditions were strongest in finance, business & property services and transport and utilities.

REUTERS