Australian business activity remains strong in the August survey

SYDNEY, Sept 13 (Reuters) – A gauge of Australian business confidence rose for a second month in August as interest rates rose and sales remained surprisingly strong amid high inflation, while strong spending pressures showed signs of cooling.

Tuesday’s survey from National Australia Bank Ltd (NAB) (NAB.AX)’s business conditions index rose 1 point to +20 in August, which was above the long-term average.

The confidence index firmed 2 points to +10, putting it above its long-term average.

“Overall, the survey suggests that demand remains strong through August,” said Alan Oster, chief economist at NAB Group.

“We continue to expect that inflation and rising interest rates will eventually begin to weigh on household budgets materially,” he added. “But so far, it seems that this dynamic has not yet caught up.”

Rising inflation has prompted the Reserve Bank of Australia (RBA) to raise rates five times since the start of May, raising rates to 225 basis points to 2.35 per cent and warning it will go further.

Markets are skeptical that the RBA may delay this a bit and lean towards a quarter point move in October.

The NAB survey’s measure of shopping spending showed a modest decline to 4.4% in August, from a high of 5.3% in July. Labor cost growth also slowed to a quarterly pace of 3.5%, from 4.5%, while retail price growth slowed to 3.3%.

The survey continues to show strength in demand, with the sales index rising 4 points to a strong +30 in August, the highest in more than a year.

Companies are still off their record high of 86.3 percent.

Profitability fell 2 points to a steady +16, while the employment index dropped 2 points to +16. Official figures show the unemployment rate fell to a new 48-year low of 3.4% in July.

A separate survey of consumers from Westpac showed confidence rose in early September, thanks in part to the strength of the labor market.

Editing by Wayne Cole. Reporting by Sri Navaratnam

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