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Australian Business Conditions Surge to Highest on Record

Updated on
  • Conditions index jumps 7 points; confidence unchanged at 8
  • Indicators suggest possible pull-back in coming months: NAB

Australian business conditions surged to the highest on record, reinforcing signs of a strengthening labor market and pickup in investment.

The sentiment index jumped seven points to 21 in October and was driven by spikes in sales and profitability gauges, according to a National Australia Bank Ltd. survey of more than 400 firms conducted in the last week of the month. The business confidence index was unchanged at a revised 8.

“Results from the survey indicate that the business sector in Australia is very strong at present, which is having positive spill-overs into the labor market and, to some extent, investment,” the bank said in a statement. “However, fairly restrained levels of business confidence could be telling us something about how firms see the outlook.”

The Australian dollar rose on the report, buying 76.30 U.S. cents at 11:54 a.m. in Sydney from 76.18 before its release.

Australia’s central bank is forecasting that a strengthening labor market will eventually drive wage gains and faster inflation, while Deputy Governor Guy Debelle said Monday there had been a “solid upward trajectory” in business investment. Household spending remains a key uncertainty -- particularly after retail sales posted the weakest three-month stretch in seven years.

While the survey’s employment conditions were unchanged, the bank said the measure still remained at levels that implied solid growth in employment, which should be sufficient to put more downward pressure on the jobless rate.

But the report came with a caveat: leading indicators suggest the possibility of some pull-back in coming months. The bank said that forward orders had eased slightly and the result was driven by a surprise jump in manufacturing.

“This is an extremely strong result and of itself would suggest a better than expected performance for the economy,” said Alan Oster, National Australia Bank’s chief economist. “However, it is unclear just how long conditions can remain at these record levels.”

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