Good business activity despite pull-back

Lilly Vitorovich
(Australian Associated Press)

Business activity is expected to remain buoyant in the near term, despite a pull-back in conditions and confidence in February, according to National Australia Bank.

NAB’s monthly index of business conditions fell to nine last month, from the surprisingly strong 16 in January, although it was still well above the level of zero that separates growth from contraction.

Business confidence fell to seven in February from 10 the previous month.

NAB chief economist Alan Oster on Tuesday said the bank was not surprised with the drop, given the strong bounce in January was likely due to temporary factors.

“Even so, conditions are still holding up at levels that would make you reasonably comfortable about the near-term growth prospects for the economy, putting aside some of the concerning trends we are seeing in retail,” Mr Oster said in a statement.

Most industries are showing solid or improving business conditions, according to NAB.

Mr Oster said the fall in business conditions was primarily due to a steep drop in recreation and personal services, plus smaller falls in transport, finance, property and business services.

“We saw the big service industries drive the moderation in business conditions this month, but even after pulling back a little, these industries continue to lead the non-mining recovery.

“It is encouraging to see so many industries reporting solid levels of business conditions, but it is hard to look past the disappointing results from retail, especially given the importance of consumption to the growth outlook,” Mr Oster said.

On a brighter note, the retail industry seemed to have lifted its demand for labour since last year, he said.

The strong performance in January was driven by the service sector, while the mining and retail sectors moved into expansion.

The survey’s employment measure also slipped last month, dropping to a level of 5.0 from 7.0 in January.

“The trend in employment conditions has improved notably in the past two months, to a point where the index now suggests the economy should be producing enough jobs to bring down the unemployment rate should the participation rate remain steady,” Mr Oster said.

However, the NAB employment index had been suggesting faster employment growth than the Australian Bureau of Statistics labour force survey in recent months, he said.

The next set of ABS employment data is due to be released on Thursday.

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