Australia (Common Wealth) _ Australia’s business conditions deteriorated sharply in May, hampered by slower sales and employment gains, indicating that demand growth is slowing in the aftermath of the central bank’s most aggressive tightening procedure in its recent history.
The National Australia Bank Ltd (NAB) survey, issued on Tuesday, revealed that its indicator of business conditions decreased by a significant seven points to +8 in May, but stayed just over the long-run average.
The volatile index of confidence fell back into negative territory, falling to -4 from 0 in April, indicating that pessimistic enterprises outnumbered optimistic firms.
In May, the survey’s sales index decreased 8 points to +14, the employment index fell 7 points to +4, and forward orders, a leading indicator of demand, dipped to -5.
“With the easing of business conditions accelerating and forward orders falling sharply,” said NAB chief economist Alan Oster, “there is a growing risk that the RBA’s efforts to maintain an even keel’ will fail.”
The pattern will be key in the coming months as the RBA strives to assess whether it has done enough and whether underlying inflation pressures are lessening in a timely manner.The survey indicated persistent pricing pressures, with the measure of labor costs increasing to a quarterly rate of 2.2%, up from 1.9% the previous month, and purchasing costs increasing to 2.5%, up from 2.2%.
Last week, the RBA startled markets by lifting the cash rate by another quarter-point, bringing the total hikes to 400 basis points since May of last year, and warning that more rate hikes may be needed to bring inflation under control.
Markets have priced in the possibility of two more hikes to 4.6%, with rates remaining unchanged for the rest of the year.
CBA payments data released on Tuesday showed that consumers were moving to public transportation to save money on gasoline and parking, and that working parents needed to work more hours to make ends meet, as evidenced by rising childcare spending.
“Consumer spending is generally weak, and we expect it to slow further given the RBA’s interest rate rises, with more on the way,” said CBA senior economist Belinda Allen.
