Strong businesses failing to lift economy

Rebecca Gredley
(Australian Associated Press)

Australian companies are experiencing very strong business conditions but their improving profits are not strengthening the broader economy, a new survey shows.

National Australia Bank’s September business survey of business conditions found the construction industry is performing strongly while retail remains problematic with conditions in negative territory and trending lower.

While overall business conditions for the month were significantly above the long term average and just below peaks experienced before the global financial crisis, confidence remains weak.

NAB’s survey found business confidence had improved only slightly from a sharp drop in August and appeared to be trending down again.

NAB chief economist Alan Oster said the latest survey indicated Australia’s business sector is “doing very well”, with the improvement showing in profits and jobs growth.

However investment was “somewhat disappointing”, he said.

“In that context, it will be important to keep an eye on the recent softer trend in business confidence.”

Mr Oster said companies are using profits to reduce debt and improve balance sheets in a sign they remain worried about risks.

ANZ economist Daniel Gradwell said despite businesses being cautious, there were encouraging signs around employment and hours worked, indicating a likely continuation in recent jobs growth.

“The labour market is in good shape and should remain so over at least the near term,” he said.

Mr Gradwell said the strength in the construction sector was not surprising, considering the backlog of housing work across Sydney, Melbourne and Brisbane plus the impact of major public infrastructure projects in the first two cities.

“The outlook for construction activity is stronger than it has been in years and will be a key contributor to economic growth,” he said.

The stagnant retail sector remains a worry for the broader economy, with NAB’s survey showing it to be lagging far behind every other sector, including mining, construction and manufacturing.

Figures released by the Australian Bureau of Statistics last week showed a plunge in retail spending in August, with the sharpest fall in more than four years.

The weaker than expected retail turnover highlights the impact of rising household debt and weak wages growth on consumer purse strings.

“The sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent rebound in consumer spending,” NAB’s Mr Oster said.

The ABS figures showed retail turnover plunged 0.6 per cent to $25.9 billion in August, missing market expectations of a rise from July of 0.3 per cent.

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