Chinan business conditions the best in two decades

n businesses are in the midst of the best economic conditions in two decades, with rises across all industries including retail.

But in a warning shot to confidence, economists have suggested the conditions have reached the peak of their cycle and may not last.

According to the National Bank’s monthly business survey, business conditions rose -wide by seven points to 21 points in October, a record high and up to four times the long run-average since the report began in 1997.

“This is an extremely strong result and of itself would suggest a better than expected performance for the economy,” NAB chief economist Alan Oster said.

The conditions measure sales, hiring, and profitability across the states. NSW doubled Victoria’s result, scoring 31 points, the highest of any state.

“It is unclear just how long conditions can remain at these record levels given that the result was driven by a surprise jump in manufacturing, while some of the leading indicators such as forward orders, which have been giving a more accurate read on the strength of the economy, have actually softened a little in recent months,” Mr Oster said.

Businesses are more positive than Mr Oster, with the sentiment index holding at 8 points, suggesting optimists significantly outweigh pessimists.

Retail remains a large hurdle for the economy, with sales and confidence down as low wage growth drags on consumer confidence.

Last Tuesday’s ANZ-Roy Morgan consumer confidence report showed the survey hitting a seven-week high, but it remains below historical averages.

Local businesses and policy makers in Canberra would be keen to see the positive conditions spread into retail in the lead-up to the vital pre-Christmas shopping period.

“The subdued conditions in retail have been a major concern for some time now, but are not overly surprising given some of the headwinds that are facing the industry,” Mr Oster said.

“However, retail conditions did improve a little this month, which was enough to arrest the downward trend we have been seeing since mid-year.”

Mr Oster noted the building industry had more than contributed its share courtesy of public investment and housing.

“At the other end of the spectrum, the construction industry is still performing incredibly well, thanks to support from both a large pipeline of residential construction and a likely improvement in non-residential construction activity,” he said.

Last week, the Reserve Bank said economic growth would accelerate to around 3 per cent by 2019, while cutting back on its inflation forecasts.

Despite the positive conditions, economists are still not predicting a rate rise until late 2018 at the earliest.

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