Business Conditions in Australia

SYDNEY (Reuters) – Australian business conditions fell to the lowest in 2-1/2 years in August, impacting job outlook, according to a recent survey. Mixed news about inflation pressures was also reported.

The survey from National Australia Bank (NAB) revealed that its index of business conditions dropped 3 points to +3, the lowest since January 2022 and below the long-run average. The more volatile business confidence index decreased 5 points to -4, marking the lowest level of the year.

Within the conditions measure, the employment index plummeted from +7 to +1 after a brief rise in July, indicating that weak sales and profitability may be affecting labor demand. NAB Chief Economist Alan Oster commented, “That suggests the period of very strong private sector labor demand seen throughout the post-COVID period may be coming to an end.” He noted that conditions are now significantly below average, reflecting broad weaknesses in the private sector due to a slowing economy.

The Reserve Bank of Australia (RBA) has maintained the interest rate at 4.35% since November, believing that the current rate is sufficient to bring inflation back to its target band of 2-3%, while ensuring job security. However, underlying inflation remained persistently high at 3.9% last quarter, leading policymakers to rule out an interest rate cut this year.

Despite this, markets have an 80% probability forecast of an RBA cut in December, partly due to expectations of the U.S. Federal Reserve easing its policy this month alongside other major central banks.

The survey also revealed mixed news regarding inflation measures. The growth in labor costs eased to a quarterly rate of 1.7% from July’s 2.4%, which had been influenced by a minimum wage increase. Conversely, purchase costs stayed high at 1.6% in the quarter, up from July’s 1.3%, while retail prices rose to 1.2% for the three months ending in August, up from 1.0% in July.