SYDNEY (Reuters) – A closely-watched measure of Australian business conditions fell in April with employment easing to below average for the first time since late 2016, a potential warning sign for the labour market.
The National Australia Bank’s index of business conditions, released on Tuesday, dropped 4 points to +3, unwinding all of March’s gain.
The survey’s volatile measure of business confidence – which measures expectation for conditions going forward – edged up 1 point to 0 in April. The survey’s measure of sales slipped 4 points to +7, while profitability fell 4 points to +1.
Worryingly, its index of employment slid 7 points to -1, with the largest falls in retail, manufacturing and wholesale. Conditions in mining and services held up better.
“This is the first time the employment index has shown signs of weakness,” said NAB Group Chief Economist Alan Oster. “While employment has previously held up better – similar to official data – the impact of slowing activity and a weak outlook may now be flowing through to the labour market.”
The labour market has been one of the strongest sectors of an otherwise mixed economy, with the jobless rate declining steadily to an eight-year trough of 4.9% in February.
Unemployment did, however, tick up to 5% in March and analysts forecast a further rise to 5.1% when the April data are released on Thursday.
Just last week, the Reserve Bank of Australia (RBA) said it was watching closely to see if employment remained strong and signalled any sign of weakness could lead to a cut in interest rates.
“We will be watching future readings of the employment index to assess if this is a sustained signal,” said Oster. “The interest rate outlook appears to hinge on continuing strength in the labour market.”
Forward-looking indicators remained subdued in April.
Forward orders, the most reliable indicator of domestic demand, held at -1 while the capacity utilisation rate nudged up to 81.1%.
Measures on inflation were also sluggish with labour and retail costs growing only modestly.
Steep falls in home prices and a tightening of lending conditions by banks have combined with subdued wage growth and inflation to darken the outlook for the economy, which slowed sharply in the second half of 2018.
(Reporting by Wayne Cole; Editing by Sam Holmes)