Eco 1: Strong Confidence, Conditions

  The Australian economy's recovery is accelerating, as two surveys yesterday indicate.The & #160;ANZ Bank on job ads was very strong in February (see next story), while & #160;the National Australia Bank on business conditions and confidence, revealed a very solid & #160;February.The NAB said business confidence was now back at its very high levels of late 2009, while business conditions, which held up in January, have improved again.The NAB survey showed & #160;confidence rose 4 points (to +19 points) in February, & quot;returning to the surprisingly strong levels recorded in late 2009 and, before that, last seen in May 2002. & #160; & #160; & quot;Increased confidence was particularly noticeable in mining, retailing, wholesaling and transport. Confidence lifted sharply in Western Australia over recent months. & quot;At the same time the rebound in & #160;business conditions & #160;(up 5 points to +8), largely reflected & quot;better trading conditions and profitability (both up 5 points). & quot;The employment index eased marginally but labour market conditions remain firmly positive. At +8 index points, overall business conditions in February are not much below the strong conditions recorded in late 2009 (+10 points in December). & quot;Most sectors reported an improvement in business conditions, with mining showing a very sharp turnaround from January and recreation & #38; personal services higher. & #160; & quot;Manufacturing and retailing while stronger in the month are trending down given recent weakness. Conditions were worse in wholesale & #38; construction, & quot; the NAB said.An encouraging part of the survey was a sharp recovery in forward orders in February, which had shown an oddly large fall in January. & quot;The fall in forward orders in January now appears anomalous ? the orders index was +6 points in February and has been positive in five of the past six months. & quot;It appears that stocks fell in February (the index fell to -4 points) ? given the implied strength of demand, some of this decline may have been unintended. & quot;Export sales improved but remain soft. & #160; & quot;Capacity utilisation declined to 80.7% and although it trended down marginally, it could be characterised as broadly unchanged. & quot;This is probably consistent with strong business conditions and forward orders being combined with slightly softer employment conditions. & quot;Labour cost pressures eased on a quarterly basis to 0.7% (0.9% last month), but are still above those recorded in the trough of the cycle in mid-2009. & quot;Annual wage growth is now 1.0% (0.8% in January). Quarterly purchase cost inflation eased to 0.3% (0.5% last month) to be running at 1.0% through the year, & quot; the bank said.The NAB said the results of the survey had not caused it to alter its forecasts for the Australian economy. & quot;While the economy grew strongly in Q4, and in line with our forecasts, the February survey points to activity being a touch softer in Q1 of 2010. & quot;There has been some withdrawal of stimulus measures (the investment allowance and the first home owner boost) and interest rates were raised again in March. & quot;Nevertheless, there still appears to be considerable momentum in the domestic economy, with forward orders strengthening and high levels of business confidence. & quot;Public sector demand growth is growing strongly, the employment outlook is firmly positive and monetary policy is still accommodative. & quot;Our GDP forecasts remain at 3% for 2010 (or around 3.25% from December 2009 to December 2010), accelerating to around 3.75% in 2011. In financial year terms this equates to growth of 2.25% in 2009/10 and 3.5% in 2010/11. & quot;Applying our growth numbers suggests that unemployment will fall to around 4.75% by end 2010 and 4.25% by end 2011. & quot;The official estimate for unemployment in January of 5.3% is still broadly consistent with that track. & quot;We expect core inflation (as measured by the RBA's preferred measures) to be 2.3% (a touch below to the RBA's 2.5%) by end 2010, lifting to around 2.6% in late 2011 (also similar to the RBA). & quot;The RBA has flagged the need for further rises in the official cash rate and we expect it to be around 4¾% by end 2010. & quot;We now have rate rises pencilled in for May, August and November. & quot;That said, every meeting in 2010 is probably live and a decision will very much be data dependent. & #160; & quot;Nevertheless, both fiscal and monetary policy will need to become restrictive during the course of 2011 and so we have maintained our view of a peak in rates of 5.5% by late 2011,'' the NAB concluded.. & #160;  

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