Australia business conditions improve in Aug but confidence falters on China: survey

[SYDNEY] Australian business conditions improved in August as both trading and profitability grew, yet confidence took a hit amid growing worries about the health of China's economy, a survey showed on Tuesday showed.

National Australia Bank's monthly survey of more than 500 firms showed its index of business conditions rose 5 points to +11 in August. In contrast, its measure of business confidence dipped 3 points to +1 - its lowest since mid-2013.

"While confidence tends to track conditions quite closely, recent financial market ructions and China growth concerns appear to have had an unnerving effect on business - albeit not enough to send confidence into negative territory," said NAB's chief economist Alan Oster.

Overall, Mr Oster said the survey results added to mounting evidence that a weaker Australian dollar and record low interest rates were having "the desired effect and helping to offset the weakness in mining".

The survey's index of sales jumped to +20, from +12, while profitability rose five points to +12.

Forward orders climbed two points to +5, but disappointingly, the index of employment stayed in negative territory at -1.

The capital expenditure index was unchanged at +6, remaining just above its long-run average.

Mr Oster said trend growth pointed to a stronger expansion of non-mining business investment than what official data currently indicates.

This is likely to be welcomed by the Reserve Bank of Australia, which is counting on a pick up in spending by firms outside of the mining sector.

The survey offered little signs of inflationary pressure, with labour costs still relatively subdued.

REUTERS