Australia business confidence holds gains, jobs a worry

← Homepage

SYDNEY Feb 12 Australian business confidence improved in January as sales and profitability recovered from low levels, although firms also reported weakness in hiring that might bode ill for unemployment, a survey reported on Tuesday. The monthly survey of more than 400 firms by National Australia Bank found confidence rebounded in the mining industry in January, perhaps thanks to rising prices for some key commodities, notably iron ore. The survey's main measure of business confidence edged up a point to 3, adding to December's jump. The index of business conditions improved to -2 in January, from -5 the previous month, but remained below its long-run average of 5."While profitability and trading conditions posted solid gains in the month, employment conditions weakened considerably," noted NAB's chief economist, Alan Oster.

"Forward orders were little changed at poor levels, suggesting little upward momentum."The survey's measure of business sales rose 6 points to stand at a net balance of 1 in January, while the index of profitability climbed 7 points to -1.

However, the measure of employment fell back 4 points to -7, with construction again the weakest sector. Measures of labour costs also softened markedly, suggesting wage pressures were abating. There was scant sign of inflation anywhere in the survey, with retail prices falling amid widespread discounting.

"Overall, the survey implies underlying demand growth in the March quarter of around 2.75 percent -- a slight improvement on expectations for the December quarter but still below trend," said Oster. Oster said he still expected the Reserve Bank of Australia (RBA) would have to cut interest rates further, although the next move might not come until May. The central bank cut rates in both October and December, taking them to a record-matching low of 3 percent. It skipped a chance to ease further at its February policy meeting but said it stood ready to cut further if the economy disappointed.