Daily Commentary BY THE CURVE TEAM –

Inflation Outlook Supported by Latest Business Survey

13th of September, 2017

More positive signs for the outlook for the Australian economy with business conditions continuing to show strength, however risks still remain.

One of the key themes within the RBA’s rhetoric of late has been around the persistent strength in business conditions yesterday’s NAB’s business survey confirmed that this trend is remains in tact. Business conditions lifted to the highest levels since early 2008.

On the other hand, business confidence experienced a sharp decline for the August. However, one must take this with a grain of salt as we have seen a sharp increase in market volatility over the month particularly surrounding geopolitical tensions in North Korea.

The other area of concern remains around retail conditions which drifted into negative territory. Following from last weeks poor retail sales figure, NAB Chief Economist Alan Oster echoed the concerns of the RBA citing that:

“We will be watching this trend closely as household consumption is a notable point of difference between our relatively subdued growth outlook and the RBA’s more sanguine forecasts, and will be key to the economy’s sustained return to trend growth”

There could be some respite for retailers over the months ahead.

Employment growth could be set to improve even further with the NAB employment index jumping a post GFC higher. The NAB employment index is historically a good leading indicator of employment and suggest employment growth could lift further in the months ahead

An improving labour market is not only good for confidence but increases the chance that we could eventually see wage growth return. This would help lift conditions for retailers.

We will get a timely update on consumer confidence today with the Westpac monthly survey due for release. No doubt the RBA will be watching closely to see if the dichotomy between businesses and the consumer confidence still persists.

Oliver Parsons

Client Relationship Officer