August survey shows Australian business activity remains strong

SYDNEY, Sept 13 (Reuters) – A gauge of Australian business confidence recovered for a second straight month in August as sales remained surprisingly strong amid rising interest rates and high inflation, while huge cost pressures also showed showing some signs of cooling.

The National Australia Bank (NAB) (NAB.AX) survey on Tuesday showed its business conditions index rose 1 point to +20 in August, well above its long-term average.

Its confidence indicator firmed 2 points to +10, above its long-term average.

“Overall, surveys suggest demand has remained strong in August,” said Alan Oster, chief economist at NAB Group.

“We continue to expect inflation and rising interest rates to eventually start to put more pressure on household budgets,” he added. “However, so far, this dynamic does not appear to have taken hold.”

Soaring inflation has prompted the Reserve Bank of Australia (RBA) to raise interest rates five times since early May, raising rates by 225 basis points to 2.35 per cent and warning of more to come.

Markets suspect the RBA may slow down a bit from here and lean towards a 25 percent move in October.

The NAB survey of procurement costs did show that procurement costs fell in August to 4.4% from a record high of 5.3% in July. The quarterly rate of growth in labor costs also slowed to 3.5% from 4.5%, while retail prices held steady at 3.3%.

The survey continued to show the resilience of demand, with its sales indicator climbing 4 percentage points to a very strong +30 in August, the highest level in more than a year.

Corporate capacity utilization remained flat, just shy of the all-time high of 86.3%.

Profitability fell 2 points to a still firm +16, while the employment index also fell 2 points to +16. Unemployment fell to a 48-year low of 3.4% in July, official data showed.

A separate survey of consumers by Westpac showed a rebound in consumer confidence in early September, partly due to a strong labour market.

Wayne Cole reporting by Shree Navarratnam

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