Brace Position Points To Interest Rate Cut
Sydney Morning Herald
Wednesday August 13, 2008
EMPLOYERS are reducing the risk of a wages-fuelled inflation breakout by letting a growing proportion of their workforce and machinery lie idle as they brace for an economic slowdown.
According to the National Australia Bank's monthly survey for August, business conditions are deteriorating at their fastest rate since the early 1990s and confidence is at recessionary levels. Businesses in NSW were the worst affected last month. The state was alone in registering a majority of employers who said their business was in a downturn, rather than an upswing. "Perhaps the most concerning feature of the state data is the very poor and deteriorating results that continue to be reported in NSW," the bank's group chief economist, Alan Oster, said. Nationally, responses on profits, employment and forward orders were at their lowest ebb since 2001, when the economy entered a post-Olympic torpor. "There are not many things that are going up," Mr Oster said. The survey provides yet more impetus for the Reserve Bank to make a series of interest rate cuts in the coming year, with the aim of preventing a recession. NAB is tipping that interest rates will be half a percentage point lower by Christmas. Adding to the case for rate cuts, yesterday's survey showed a reversal of one of the Reserve's reasons for keeping interest rates high: the economy is running out of spare productive capacity and a shortage of labour could spark a bidding war among employers that would push wages up. Companies reported they had been using less of their productive capacity - just 81.6 per cent versus a record 85.1 per cent last October - which suggests a lessening of pressure on wages. Economists consider 75 per cent to be the level that indicates a recession. "Given the falls reported already in trading, it is likely that capacity utilisation will fall significantly further in the period ahead," Mr Oster said. "A sharp slowing in demand, capacity utilisation and profits probably means that the scope for more aggressive wage outcomes will become less of a concern." Wages data due out today are expected to show wages growing by a strong, but not breakneck, annual pace of about 4 per cent. A surprise in today's numbers is one of the increasingly few events standing between a Reserve Bank cut in interest rates next month. The NAB survey showed wages in the mining sector had been growing faster than wages in the rest of the economy, at 8.5 per cent. It also showed there had not yet been a significant spread to other sectors of the economy. Master child-care costs- Money liftoutRoss Gittins - Page 11
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