A measure of Australian business conditions surged to its highest on record in October as strength in sales and profits across a range of industries completely overwhelmed protracted weakness in the retail sector. National Australia Bank's survey of more than 400 firms showed its index of business conditions climbed 7 points to +21 in October, quadruple its long-run average of +5 and the highest since the survey began in 1997.
The survey's often volatile measure of business confidence held steady for once at +8. "Overall, results from the Survey indicate that the business sector in Australia is very strong at present, which is having positive spill-overs into the labour market and investment," said NAB group chief economist Alan Oster. The strength was broad based across States and industries, with even retail seeing some modest improvement having lagged for months.
This survey has been running hot for months now in stark contrast to the mood of consumers, who were fretting over rising utility costs and subdued wage growth. Still, there has been a pick up in sentiment in the most recent consumer surveys with an ANZ-Roy Morgan poll out on Tuesday hitting a seven-week top. Household spending accounts for around 56 percent of annual economic output (GDP) so any improvement would be welcomed by policy makers.
The Reserve Bank of Australia (RBA) last week reaffirmed its expectation that economic growth would accelerate to around 3 percent over the next couple of years, even as it trimmed forecasts for inflation. Businesses certainly seemed to be doing well with NAB's measure of sales jumping 11 points to +30 in October, while profitability climbed 9 points to +26.
The construction sector reported booming conditions thanks to strength in public investment and housing, while mining had recovered to be one of the best performing industries this year. The survey's measure of employment held at a relatively high +7 in October, firm enough to put more downward pressure on the unemployment rate. Labour costs remained subdued in the month as did measures of purchase costs and retail prices.