A view of a construction site for a subway station in Sydney, Australia, July 22, 2021. REUTERS/Sam Holmes
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SYDNEY, Aug 9 (Reuters) – A measure of Australian business confidence recovered in July as sales and profits held up surprisingly well in the face of rising interest rates and high inflation, although firms also reported record costs amid supply constraints.
Tuesday’s survey by National Australia Bank Ltd ( NAB ) ( NAB.AX ) showed its business conditions index rose 6 points to +20 in July, well above its long-term average.
Its confidence gauge rose 5 points to +7, reversing June’s decline and leaving it slightly above the long-term average.
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“Strength in conditions remained grounded across all states and industries, with growth notable in the construction sector,” said NAB Group Chief Economist Alan Oster.
“Overall, the survey suggests that despite global and domestic economic headwinds, demand has remained strong – and inflationary pressures continue to rise suggesting that inflation has not yet peaked.”
The survey’s measure of purchasing costs climbed to a record 5.4%, while labor costs rose 4.6% at a quarterly pace. Retail price growth rose to 3.3%, with product prices up 2.7%.
Rising inflation has seen the Reserve Bank of Australia (RBA) hike rates four times since early May, raising rates by 175 basis points to 1.85% and warning of more ahead.
Markets are leaning towards another 50 basis points in September and rates as high as 3.25% by the end of the year.
That stark outlook has soured consumer sentiment, with two surveys released on Tuesday showing sharp declines in confidence amid much pessimism over the economic outlook. Read more
However, the NAB survey continues to show resilience in current demand, with its measure of sales jumping 8 points to an all-time high of +27 in July.
Profitability rose 4 points to +17 and the employment index gained 6 points to +17, a strong reading that suggested the unemployment rate could fall further having already fallen to a 48-year low of 3.5% .
Firms also appeared to be running out of capacity utilization rising to a record 86.7%, up from 84.9% in June.
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Reporting by Wayne Cole; Editing by Sam Holmes
Our Standards: The Thomson Reuters Trust Principles.
