Business conditions flat in NSW and Victoria
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Business conditions flat in NSW and Victoria

Most businesses in NSW and Victoria reported flat conditions in January, while the battered retail industry struggled with slow wage growth and high household debt.

But conditions in smaller states including South Australia and Tasmania saw some improvement after a sharp drop in December, according to the monthly NAB business survey.

Underwhelmed: NAB chief economist Alan Oster says public infrastructure investments in Sydney and Melbourne, like WestConnex (pictured), had not filtered through to the private sector as much as hoped.

Underwhelmed: NAB chief economist Alan Oster says public infrastructure investments in Sydney and Melbourne, like WestConnex (pictured), had not filtered through to the private sector as much as hoped. Credit:Steven Siewert

Retail was again the worst-performing sector, while mining, recreational and personal, and the finance, business and property sectors recorded the strongest conditions.

After December's poor results, NAB chief economist Alan Oster said it was encouraging the economy did not fall further.

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"The economy is OK - it's back to about long-run average, but there has been a significant loss of momentum over the last six months in the private sector of the economy," Mr Oster said.

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The survey results suggested the economy was adding jobs at a rate of about 19,000 a month, slightly up on December but behind the pace for most of 2018.

"The labour market is still hanging in there," Mr Oster said. "It's enough to keep the labour market roughly where it was."

Reserve Bank governor Philip Lowe last week said household expenditure and employment would be important influences on the bank's next rate move.

"We will be monitoring developments in the labour market closely," Dr Lowe said. "If Australians are finding jobs and their wages are rising more quickly, it is reasonable to expect that inflation will rise and that it will be appropriate to lift the cash rate at some point."

Among the forward indicators, capacity utilisation fell in a worrying sign for future employment. Utilisation in the transport, retail, wholesale, finance and property sectors was below the five-year average.

ANZ senior economist Felicity Emmett said capacity utilisation had reached its lowest level in the past two years.

"The labor market has been a real brightspot in the economy," Ms Emmett said, adding that any deterioration would be a bad omen for the overall economy. "The capacity utilisation rate normally has quite a good relationship with the unemployment rate."

But mining remains a bright spot, with utilisation at the top of the five-year range and overall business conditions well above those in other industries.

Falling house prices have battered economic conditions in the big eastern states despite large government infrastructure projects including WestConnex and the metro lines in Sydney, and rail crossing removal and road developments in Melbourne.

Mr Oster said those projects had not helped private sector economic conditions as much as forecasters had hoped.

"You previously would've hoped that some of that infrastructure would've spread over into private sector investment," Mr Oster said. "And in this survey, private sector investment went down a bit."

Nick is a journalist for The Sydney Morning Herald.

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