Australian businesses in the midst of best economic conditions in two decades

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A National Australia Bank (NAB) logo is pictured on an automated teller machine (ATM) in central Sydney September 12, 2014.
A National Australia Bank (NAB) logo is pictured on an automated teller machine (ATM) in central Sydney September 12, 2014. Reuters/David Gray/File Photo

Australian business conditions have surged to the highest on record, with rises across several industries. National Australia Bank's monthly business survey revealed that business conditions rose by seven points to 21 points in October, with the jump driven by profitability gauges and spikes in sales.

The new figure was four times the long run-average since the first report in 1997. The recent rise reinforces signs of improving labour market. The central bank is predicting that an improving labour market will eventually drive wage gains.

NAB chief economist Alan Oster said it was an extremely strong result and of itself would suggest a better-than-expected performance for the Australian economy. Sales, hiring and profitability were measured across the states.

New South Wales doubled Victoria's result. It scored 31 points, the highest of any state.

"It is unclear just how long conditions can remain at these record levels given that the result was driven by a surprise jump in manufacturing, while some of the leading indicators such as forward orders, which have been giving a more accurate read on the strength of the economy, have actually softened a little in recent months," Sydney Morning Herald quotes Oster as saying. But businesses are positive, with the sentiment index holding at 8 points. On Monday, Deputy Governor Guy Debelle said there had been a “solid upward trajectory” in business investment.

In Canberra, local businesses and policy makers are expected to see positive conditions spread into retail in the lead-up to the pre-Christmas shopping period. The subdued conditions in retail have been a huge concern for some time now. But Oster also noted that retail conditions see improvements this month. The progress was enough to arrest the downward trend since mid-year.

As for the construction industry, it’s showing a good performance. Oster noted that the building industry had more than contributed its share courtesy of public investment and housing.

"At the other end of the spectrum, the construction industry is still performing incredibly well, thanks to support from both a large pipeline of residential construction and a likely improvement in non-residential construction activity," he said. The Reserve Bank previously said economic growth would speed up to about 3 percent by 2019, while cutting back on its inflation forecasts. But amid the positive conditions, economists are still not predicting a rate rise until late 2018 at the earliest.

Al Jazeera English/YouTube

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