Australian business conditions improve as consumer deteriorates

Australian business conditions improve as consumer deteriorates

Australian business conditions showed continued resistance to higher interest rates and elevated price pressures, while consumer confidence fell further into “deeply pessimistic” territory, highlighting the divergent responses of the business and domestic sectors to stricter policy.

Business conditions, which measure sales, employment and profitability, rose two points to 13 in August and remained above the average level since the beginning of the year, a National Australia Bank Ltd survey showed on Tuesday. Confidence remained stable at two points, implying that optimists outnumber pessimists.

Companies continue to report very high levels of capacity utilizationsuggesting that even with a slowdown in growth, the balance between supply and demand in the economy remains very tight overall,” said Alan Oster, chief economist at NAB. “Price growth also remains highreflecting the considerable cost pressures facing companies, as well as the continued resilience of demand.”

A separate Westpac Banking Corp. household survey released an hour earlier showed that Consumer confidence fell 1.5% to 79.7 points in September, as pessimists far outnumber optimists, with 100 as the dividing line. The index has remained in a range of 78-86 over the past year.

Surveys highlight persistent gap between Australia’s highly indebted households and its corporate sectorsuggesting that companies are better able to cope with higher borrowing costs.

The NAB survey showed leading indicators strengthening, in a positive sign for the economy, with pre-orders rising 1 point and capacity utilization reaching 85.1%. At the same time, labor costs decreased 3.2% in equivalent quarterly terms, from 3.7% in the three months to June. Final price growth, which includes purchase costs, fell to 1.7% from 1.9% in the second quarter.

The Reserve Bank is currently in watch-and-wait mode after 12 rate hikes since May last year to take the cash rate to an 11-year high of 4.1% while trying to control inflation. While consumer prices have begun to retreat, a robust labor market and increasingly strong wage growth have policymakers prepared to implement further restrictions if necessary.

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