Latest NewsBusiness Conditions, Confidence RisingSaturday, 05 November 2016

Soaring business conditions have raised the prospect of a further interest-rate rise when the Reserve Bank of Australia (RBA) board meets in December.

Money markets are pricing in a 75 per cent chance of another 25-basis-point increase in the cash rate, following the two quarter-point moves in October and December.

The National Australia Bank's business survey for October released on Tuesday showed the index for business conditions jumped nine points to 12, its highest level in 21 months.

ANZ senior economist Shane Lee said the data added "significant weight to the arguments of those who expect the RBA to tighten next month".

The sharp jump in conditions narrows the gap to what appeared to be over-exuberant confidence levels that businesses have been feeling in recent months.

The NAB business confidence survey rose two points to an index level of 16 in October.

"While confidence has surged in recent times, business conditions had remained significantly below long-term averages," the NAB report said.

"That has now changed."

Most parts of the conditions index improved strongly, with profits up nine points to 13, trading up seven points to 15, and employment rising eight points from negative territory to seven points.

Commonwealth Securities economist Savanth Sebastian said that while nothing could be taken away from the overall outcome, a fall in the index for forward orders from seven points to three points did temper the result.

"Forward orders have tracked backwards ... suggesting that business will not be aggressively ramping up production in coming months," Mr Sebastian said.

Still, the positive outcome was despite the October interest rate rise, and businesses would have been aware that a further hike was on the cards in November when they were surveyed late in October.

Mr Sebastian believes it would be prudent for the RBA to wait until the New Year before raising the cash rate again given ongoing risks to the global economy.

"The employment data released on Thursday and the capital expenditure data at the end of the month will be the deciding factors on a December rate hike," he said.

The RBA board does not meet in January.

Economists expect the jobless rate for October in Thursday's report will tick back up to 5.8 per cent, after unexpectedly falling from that level to 5.7 per cent in September.

In last week's Mid-year Economic and Fiscal Outlook, the government revised down its peak for the jobless rate to 6.75 per cent by June next year from a previous prediction of 8.5 per cent in mid-2011.

Assistant Treasurer Senator Nick Sherry said Monday's 1.7 per cent fall in the ANZ job advertisement series for October - a key pointer to future employment growth - wasn't unexpected.

"We do know that despite the various actions of the government in terms of the stimulus package which have helped cushion the economy from the worst impacts internationally ... we do know that unemployment will still go up for the next year," Senator Sherry told ABC Television on Tuesday.

More than 100,000 jobs will be lost in the next 12 months, he said.

Asked if the number of unemployed could rise above the government's mid-year economic forecast, Senator Sherry said: "I don't believe so".

Supplied by AAP

Previous Next

Share This Article




Previous Articles