The Australia business sector has continued to do well in July and, on average, businesses have enjoyed conditions close to the boom times of mid-last decade. According to NAB’s latest monthly business survey of 400 firms in late July, its Business Conditions Index rose 1 point to 15 from a revised reading of 14 in June, while its Business Confidence Index jumped 4 points to 12 from June’s revised reading of 8. Both indices are now well above their long term averages.
The capacity utilisation rate, generally accepted as an indicator of future investment expenditure, remained steady at 81.9%. Capacity utilisation was at or was above long-term averages for all sectors of the economy except for mining. Spare capacity was lowest in the transport and utilities sectors.
NAB chief economist Alan Oster thought current economic conditions in Australia warranted the RBA holding the official rate at 1.50%. “Given the risks to the outlook, only tentative signs of moderation in the housing market, and a reluctance to see the AUD strengthen further, the RBA should be content with keeping interest rates on hold for an extended period.” However, some indicators were strong enough for him to consider a time when the RBA may have higher rates in mind. “That said, the recent strength in employment growth and business conditions does give some reason for optimism, and if maintained could signal a change in the balance of risks on the horizon.”