SYDNEY, Feb 12 (Reuters) - A closely-watched index of Australian business conditions showed a welcome bounce in January after an alarmingly sharp drop the month before, though the survey still pointed to cooling growth ahead.
The National Australia Bank's NAB.AX index of business conditions, released on Tuesday, rose 4 points to +7 in January. That recovered around half of December's steep slide and left it just above the long-run average of +6.
The survey's volatile measure of business confidence nudged up one point to +4 in January, having been much softer than conditions in recent months.
"We had noted that seasonality and statistical volatility may have driven some of the (December) result but that the trend in conditions had been down," said NAB chief economist Alan Oster.
"The January survey confirms this, and while we don't think activity in the business sector has crashed, we think that there has been some loss in momentum."
Forward orders, the most reliable indicator of domestic demand, firmed 3 points to +2 in January, taking it back out of negative territory, the reading on employment added one point to +5.
The labour market has been one of the strongest sectors of an otherwise mixed economy, with the jobless rate declining steadily to a 6-1/2-year trough of 5 percent.
Yet 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.
The Reserve Bank of Australia (RBA) last week was forced to cut its forecasts for economic growth and inflation after a run of disappointing data.
The central bank had touted the strength of business conditions as one reason for optimism.
Investors have also narrowed the odds on a cut in interest rates this year after RBA Governor Philip Lowe tempered a long-held tightening bias and said an easing could be just as likely as a hike.
"We now see the RBA staying in neutral for the foreseeable future, though think the next move could be down rather than up based on the current trajectory of growth and growing downside risks," said Oster.
NAB had formerly tipped a rate hike in late 2020.
The January survey's measure of sales rose 3 points to +10, while profitability climbed 4 points to +5.
Retail was again the worst performing sector, with car sales and personal & household goods the weakest sectors.
Conditions were strongest in mining, recreational & personal and the finance, business and property sectors.
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