Australian business activity stands strong amid struggles in retail sector

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A shopper carries shopping bags from a fashion store in Sydney's central retail district, Australia, May 5, 2016. Reuters/Jason Reed

The measure of Australian business conditions in September has reached its highest since early 2008, showing vigour in mining construction, lifting sales and profits. The rise has been evident despite the retail sector’s struggle with customers who slash their spending.

Based on a survey by National Australia Bank, business conditions remained at +14 last month. The survey, which involved more than 400 firms, was nearly triple its long-run average of +5.

The poll’s often unstable measure of business confidence rebounded by 2 points to stand at +7. The outcome stands in contrast to consumers’ mood, which led to a shock slump in retail sales in August. Several industries saw above-average conditions, but retail went on to a downward trend and fell back into negative territory in September.

Business confidence pulled back from the slump in August to be marginally above the long-term average. NAB group chief economist Alan Oster said the conditions show that the business sector in Australia is doing very well.

Oster said the construction industry is now leading the way with the highest business conditions. Several industries are following close behind, but other aspects of the economy, like business investment, have been somewhat disappointing in comparison.

Retail continues to be the main exception, with negative conditions continuing to raise doubts about the possibility of an imminent rebound in consumer spending although tough competition and other margin pressures are likely underpinning the result as well,” Oster said, according to Reuters. Household spending accounts for about 56 percent of annual economic output (GDP), which means an extended bout of weakness could weigh on overall growth.

Reserve Bank of Australia (RBA) has expressed concerns that spending would be undermined by slow wage growth as high levels of household debt continue. Last month, RBA governor Philip Lowe was aware that consumption would be sensitive to higher interest rates, adding it should be taken into consideration in future monetary policy.

Australian businesses seem to be faring well enough. NAB survey’s measure of sales ticked up a point to +19 last month while profitability was up 2 points to +17.

Meanwhile, the employment index dipped 3 points to +7, which is still good historically. "Despite the pull-back in employment conditions this month, the index remains at levels that imply employment growth that is strong enough to put more downward pressure on the unemployment rate," ABC News quotes Oster as saying.

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