Australian business conditions bounce sharply in June

A key measure of Australian business conditions jumped to its best level in nine months in June as a pickup in sales and forward orders led to a record improvement in employment intentions, a survey showed on Tuesday.

The monthly survey of over 400 firms from National Australia Bank showed its measure of business conditions climbed 12 index points to -2 in June, taking it back to the level held before the collapse of Lehman Brothers in September last year.

Its measure of employment surged 18 points to -7, the largest monthly rise in the history of the series and the highest since October 2008.

Firms were also feeling more confident, with that index up 6 points to +4, the first positive reading since December 2007.

The survey adds to other signs of improvement in the economy, particularly on consumer spending and housing, which could lessen the need for further cuts in interest rates from the Reserve Bank of Australia (RBA).

"We now see the RBA in data-watching mode and they are clearly comfortable at the current cash rate," said NAB's chief economist, Alan Oster.

Having eased by 425 basis points since September, the central bank kept rates steady at 3.0 percent for the past three months amid evidence of economic stabilisation at home and abroad.

"Undoubtedly the key message, and surprise, in the June survey is the strength in current activity," he added. "It suggests that the better trading and profits has seen business significantly slow the rate of labour shedding."

The labour market has been surprisingly resilient in recent months and, while unemployment has edged up to a six-year high of 5.8 percent, NAB's survey suggested it might not reach the heights of 8.5 percent that many had feared.

The survey reported a pick up across the board. Its measure of sales rose 10 points to +3, while the index of profitability gained 7 points to -2.

In a promising sign for future demand, the index of forward orders jumped 14 points to zero, a record rise for any month.

Still, Oster noted a very strong rise in vehicle orders looked to have been sparked by a temporary increase in government tax breaks for small businesses.

Indeed, much of the revival in demand could be the result of fiscal stimulus, which had a limited shelf life.

"While the survey clearly points to much better-than-expected outcomes, the real question is whether this improvement can be sustained into the second half of 2009 as the impact of cash handouts and the first home owners grants start to fade," said Oster. "Here we are less certain." SYDNEY, Reuters