August RBA rate cut looms more likely after worst retail conditions for 16 years: NAB

The National Australia Bank has revised its forecast for interest rate cuts – bringing the expected November cut forward after the bank's business conditions survey hit a four-year low.

NAB is expecting the Reserve Bank to cut interest rates next month to help boost the non-mining sectors of the economy that are struggling.

The bank's monthly business survey shows conditions slipped to a reading of minus 8 in June - well below the long-term average of five and the lowest level since May 2009.

The survey of 400 firms during the last week of June shows conditions were the worst for retailers (-28) and manufacturers (-27) and miners (-28).

Its been suggested retail activity was at 16-year lows.

The NAB chief economist Alan Oster told News Limited papers the result had more than reversed the tentative signs of improvement in April and May.

"Most concerning in June was the collapse in retail, mining and manufacturing conditions, with retail activity deteriorating to its weakest level in the history of the monthly survey (since 1997)," he noted.

Profitability, sales and employment growth were all weak as business held back on spending due to worries about the state of the global economy.

NAB's head of Australian economics, Rob Brooker, says despite the gloom, the survey shows there are some bright spots in the month.

"The areas that are doing better are areas like business services, property and finance," he says.

The survey shows confidence improved to a reading of zero in June, but that is still well below average levels.

In its analysis of the results NAB suggested uncertainty surrounding the election date "may be a negative" for business spending plans.

Meanwhile the ANZ says the fall in business conditions had more than reversed the modest improvement recorded in April and May.

It says business conditions have been below average for more than a year and confirm that past interest rate cuts - and the recent depreciation in the Aussie dollar - have yet to gain traction in the non-mining sectors of the economy.

‘’While we continue to expect the RBA to reduce interest rates further this year, the timing of the next move is complicated due to the recent depreciation of the dollar and the upcoming Federal election.

While a soft CPI outcome, in isolation, would likely be insufficient for the RBA to reduce interest rates in August, the softness in recent Australian dataflow increases the probability that the RBA may move in August.

A weak labour market report this Thursday would likely see markets price in a higher chance of an August easing, the ANZ said.