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NAB survey shows retail sector flagging

AAP logoAAP 20/10/2016 Garry Shilson-Josling, Economist

The recovery in the non-mining parts of the economy looks set to continue but weakness in consumer spending is emerging as a worry, according to the latest NAB business survey.

NAB chief economist Alan Oster said the message from firms responding to the quarterly survey is that the near-term outlook is still good.

"They don't anticipate any clear deterioration in business conditions over the next three to 12 months, while hiring intentions for the next year actually picked up markedly and capital expenditure plans remain much stronger than what some other indicators might suggest."

But the survey show a divergence in conditions between parts of the services sector, with retail trading conditions turning negative.

"Given the importance of household consumption to the growth outlook, this is something we will continue to monitor closely," Mr Oster said.

The survey also shows "very moderate inflation pressures", with firms expecting growth in their own prices and labour costs to stay subdued.

The latest reading on inflation showed consumer prices rose only 1.0 per cent over the year to June, well below the Reserve Bank's two to three per cent inflation target, while most measures of underlying inflation are below the target band.

"The outlook for business activity in this Survey should make the RBA (Reserve Bank) reasonably comfortable, but the inflation picture is less encouraging," Mr Oster said.

Even so, Mr Oster said the strong housing market meant the RBA is unlikely to cut interest rates again this year to boost the economy and lift inflation unless the September quarter consumer price index figures next week turn out to be "extremely weak".

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