NAB Australian Business Conditions Index Remains Strong in Sep

By James Glynn Features Dow Jones Newswires

Australian business conditions remained strong in September, with business confidence nudging higher, but significant concerns continue to hang over consumer spending with firms not passing on wage increases, and household debt burdens crimping demand.

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The National Australia Bank's monthly business conditions index held steady at a strong net balance of +14 points in September, nearly three times its historic average.

Meanwhile, NAB's Business Confidence index rose to a net balance of +7 in September, up from +5 in August.

According to Alan Oster, NAB's Chief Economist: "Business conditions at these levels tell us that the business sector in Australia is doing very well."

Still, there are areas of pain in the economy, he added.

"Limited pass-through of lofty business conditions to the broader economy could be signalling ongoing risk aversion and a preference to use profits for balance sheet repair," Mr. Oster said.

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The solid business conditions data comes despite a report last week showing the biggest fall in retail sales in over four years in August of 0.6% on-month.

Mr. Oster said the business survey data points to "stubbornly weak" retail conditions, which adds a level of uncertainty to the economic outlook. Conditions in the retail sector remain negative and trending lower.

"The sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent, and sustained rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well," said Mr Oster.

"Elevated underemployment, an elevated Australian dollar, household debt and peaks in LNG exports and housing construction are all potential hurdles that will ensure that the Reserve Bank of Australia proceeds with caution," Mr. Oster added.

-- Write to James Glynn at james.glynn@wsj.com

SYDNEY--Australian consumers were feeling peppier in October, with optimists outnumbering pessimists for the first time since last November, according to a monthly survey by Westpac.

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 3.6% to 101.4 in October from 97.9 in September.

"This is the first time since November last year that optimists have outnumbered pessimists and represents the highest level of the Index since October last year," said Westpac's chief economist, Bill Evans.

"Consistent reports of an improving global economy may have been a factor behind this lift in confidence. It is also likely that concerns about rising interest rates associated with overheated housing markets have eased," he added.

The upbeat data come despite a report last week showing retail sales slumped hard in August, fanning concerns that high debt and a lack of wages growth was stifling spending.

Mr. Evans said strong improvement in the job market this year, which has been led by a surge in full-time employment growth, is lifting confidence.

The rise in confidence was particularly strong for trade workers, up 22% in the month, suggesting the continued strength in residential building as a positive factor, Mr. Evans added.

A survey by National Australia Bank Tuesday showed business confidence at it highest levels in a decade.

Still, there are concerns about the Australian economy, which grew by less than 2.0% in the last year.

The Reserve Bank of Australia expects GDP growth in 2018 of around 3.0%, but some economists warn that constraints on consumer spending, such as flat wages growth, might yet stall the economy.

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

October 10, 2017 19:45 ET (23:45 GMT)