Australian Business Activity Eases in January

SYDNEY (Reuters) – A measure of Australian business activity eased in January as sales and profits softened, a survey showed on Tuesday, though confidence received a boost amid hopes for a near-term reduction in borrowing costs.

The survey from National Australia Bank (OTC:NABZY) (NAB) indicated its index of business conditions fell 3 points to +6 in January, reversing gains made the previous month. The volatile confidence index bounced to +4, up from -2, marking the highest reading since October.

The index of sales declined by 4 points to +6, while profitability slid 6 points to -2, highlighting pressure on profit margins, particularly in the retail sector.

> “Cost pressures remain elevated for businesses and are not being fully passed onto consumers, which may be weighing on profitability and therefore overall business conditions,” said Alan Oster, chief economist at NAB.

On a positive note, the employment index gained 1 point to a relatively healthy +5, continuing the outperformance of the labor market. Conditions worsened in the mining, finance, and property sectors, while retail fell back after a stronger December.

There could be some relief ahead for firms and consumers, as markets are heavily wagering that the Reserve Bank of Australia will cut its 4.35% cash rate next week to reflect a marked slowdown in inflation. This would be the first cut since the depths of the pandemic in 2020.

The NAB survey presented mixed news on inflation, with labor costs rising at a quarterly pace of 1.8% in January, while growth in purchase costs slowed to 1.1%. Retail prices rose at a quarterly pace of 0.9%, increasing from 0.7% in December.

The capacity utilization rate dropped to 82.0%, down from 82.7%, indicating a little more slack in the economy.