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business conditions remain strong...

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    Source: www.news.com.au

    Business conditions remain strong - NAB
    July 10, 2007 11:31am

    BUSINESSES continue to report robust levels of business activity, with business conditions holding firmly to last month's strong levels due to healthy trading, profits and employment, a survey shows.

    National Australia Bank's (NAB) monthly business survey showed that the business conditions index was almost unchanged in June, inching down one point to 16 index points.

    Businesses expect the strong conditions to continue in the coming months, with the confidence index remaining at 15 points during the month.

    Both results are firmly above the zero level, which separates expansion from contraction.

    NAB group chief economist Alan Oster said business conditions remained robust, with the three components of the conditions index - trading, profitability and employment - performing steadily in June.

    The trading conditions sub-index rose one point to 24, while employment increased one point to 11 index points.

    The two increases were offset by a four point decline in the profitability sub-index to 13 points.

    But while the overall results appear steady, Mr Oster said the underlying movements were beginning to show some significant changes.

    "In particular, after a period of surprising "relative'' weakness, mining confidence and conditions have surges - thereby boosting Western Australian activity further,'' Mr Oster said.

    "That, no doubt, reflects renewed confidence in the global, and especially the Chinese, economic outlook.''

    He said recent equity market strength was creating boom conditions for businesses in the finance and business services.

    But conditions and confidence in the recreational and personal services sector were declining, most likely doe to the strong Australian dollar as well as stricter smoking bans.

    "Particularly surprising, however, was the very sharp deterioration in retail confidence and conditions in June,'' Mr Oster said, adding that this will have to be watched closely.

    Despite the strength in business conditions, Mr Oster said wage increases continued to remain "reasonably well behaved.''

    As a result, interest rates should remain on hold this year. But with the risk wages growth would accelerate in the tight labour market conditions, adding to inflation, he said there was about a 40 per cent risk rates could rise before the year is out.

    Mr Oster expects inflation to be around 2.4 per cent at the end of the year, with the higher Australian dollar, strong productivity growth and slowing purchase costs helping to constrain inflation.


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