The Australian economy remains robust, with business activity proving resilient despite rising mortgage interest rates and concerns about China's economy. This follows a three-month pause in interest rate hikes by the Reserve Bank of Australia (RBA), which has warned of possible further increases.
On Tuesday, the National Australia Bank (OTC:NABZY)'s (NAB) business conditions index rose to +13 index points in August from +11 in July, remaining well above average levels. Confidence readings also nudged higher. These figures suggest that the economy remained strong in the third quarter, said Alan Oster, chief economist at NAB.
Measures of trading conditions, profitability, and employment all rose, with an uptick recorded across most industries. Capacity utilization across the economy also rose back above 85%. However, confidence and forward orders measures both edged up but remain below average, weighed down by deep negatives in the retail sector.
Despite high cost and price-growth measures remaining in the survey, labor-cost growth pulled back from a spike in July. The strength in business activity could delay interest rate cuts until further into 2024 or even make a case for the RBA to raise the official cash rate this year.
Meanwhile, on Monday, experts expressed concerns about rising oil prices potentially challenging the Federal Reserve's inflation rate target. John Stoltzfus, Oppenheimer's Chief Investment Strategist, suggested that investors should right size expectations for a long rate pause or even a rate cut.
Markets had priced in a 93% chance the Fed would hold interest rates steady at its September 19-20 meeting. However, Stoltzfus warned that inflation is still too far off the Fed's 2% goal and that the stickiness evidenced in food, services, energy and other prices warrants vigilance from the Fed.
This Wednesday's Consumer Prices Index (CPI) report is expected to show prices rose 3.6% over the prior year in August, an increase from the 3.2% rise seen in July. On a "core" basis, which strips out volatile food and energy categories, CPI is expected to rise 4.3% over last year in August, a slowdown from the 4.7% increase seen in July.
The CPI report will be the last inflation data for the Federal Reserve ahead of its meeting next week. Jay Bryson, Wells Fargo (NYSE:WFC)'s chief economist, expects the post-meeting statement to signal that the Committee maintains a hawkish bias and might consider 'additional policy firming'.
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