Australia business activity robust in April, cost pressures still a challenge

SYDNEY (Reuters) – Australian business conditions remained sturdy in April, supported by robust sales and labour market strength despite high inflation and rising interest rates, while cost pressures were still posing a challenge for firms.

The survey from National Australia Bank (OTC:) Ltd (NAB) released on Monday showed its index of business conditions fell two points to +14 in April, but stayed well above its long-run average.

The volatile measure of confidence edged up to 0, compared with March’s -1, suggesting that an equal share of firms were optimistic as pessimistic.

“Demand is still very strong, as demonstrated by elevated trading conditions, and employment is also holding up reflecting the strength of the labour market,” said NAB Chief Economist Alan Oster.

“Overall, the survey shows the economy remains resilient. We continue to expect consumption growth to slow as the effect of higher rates further impacts households, but how quickly and how sharply this occurs remains uncertain.”

The still strong business activity showed why the Reserve Bank of Australia stunned markets last week by lifting rates to an 11-year high of 3.85%, when traders had looked for an extended pause, and warned that more tightening might be needed.

Markets are still leaning towards a pause in June, although they have priced in a small chance of another rate increase by August.

The survey’s measure of sales declined 4 points to a still very high +20 in April, with the employment index picking up 1 point to +11 and profitability easing 2 points to +11.

Leading indicators, however, softened, with forward orders down 2 points to +1.

Cost growth remained a challenge, with the measure of labour costs steadying at a quarterly rate of 1.9% and purchase costs picking up to 2.3%, compared with 1.9% in March.

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