Below trend growth to continue
Conditions rise further on Recreation & Personal Services recovery.
Our podcast series to accompany the NAB Monthly Business Survey continues, giving you a 10 minute summary of the key survey developments this month. Listen now.
If listening on a mobile device, click listen in browser.
Business conditions continued to strengthen in April, while confidence eased but remained above its long-run average. Trading conditions and profitability continued to strengthen, while employment was steady. The gains came on the back of a long-awaited recovery in the recreation & personal services sector, where conditions rose 20pts. Both confidence and conditions now look fairly strong across most industries, with the exception of transport & utilities and construction where cost pressures have been most acute. Qld saw conditions strengthen considerably while conditions in Vic eased, but both conditions and confidence are fairly strong across the states with only Tas showing softer confidence levels. Capacity utilisation also continued to rise, reaching 83.9%. Cost pressures continued to build, with labour cost growth up to 3.0% and purchase cost growth reaching 4.6% (in quarterly terms) – both at new highs. However, output price inflation eased with final product prices rising 1.7% and retail prices up 2.1%. Still, these rates of price growth remain high in the history of the survey and the strength in underlying costs suggests inflationary pressure is likely to continue building over coming months. Overall, the survey highlights the ongoing strength in activity and the broad-based nature of the recovery, against a backdrop of cost pressures continuing to pose a significant challenge for businesses.
Business conditions rose 5pts to +20 index points, building on gains in March. Trading conditions and profits again drove the result, with trading conditions up 4pts to +27 index points and profitability up 9pts to +22 index points. Employment was steady at +10 index points.
“Business conditions continued to improve in April,” said NAB Group Chief Economist Alan Oster. “Pleasingly, the improvement was largely driven by much stronger conditions in the recreation & personal services sector, which has lagged through the recent recovery period but is now back above their pre-COVID average level.”
“Conditions in most industries now look fairly strong although conditions in construction and in transport & utilities are being held down by negative levels on the profitability index, a sign that cost pressures could be beginning to take a toll on margins,” said Mr Oster.
“Across the states, there was a large improvement in Queensland, and New South Wales and South Australia also made gains, although conditions in Victoria eased,” said Mr Oster. “Still, conditions are fairly strong across the board.”
Business confidence eased 6pts to +10 index points, still above its long-run average after several months of steady increases. Forward orders also eased slightly to +9 index points, while capacity utilisation rose to 83.9%.
“Business confidence remains relatively high across industries and in most states, with only Tasmania showing noticeably weaker levels,” said Mr Oster. “Capacity utilisation continues to rise and forward orders are still well above their long-run average, supporting the positive outlook.”
Cost pressures continued to climb after hitting record growth rates in March, with labour cost growth up to 3.0% and purchase cost growth reaching 4.6% (in quarterly terms). However, price inflation stepped back from the levels seen in March, with final prices rising 1.7% overall and retail prices up 2.1%.
“As expected, the Q1 CPI result showed inflation has risen sharply and the April survey results show little let-up in the underlying cost pressures that are driving prices higher,” said Mr Oster. “Price growth eased somewhat in the April survey after hitting record rates in March, but remained high when looking at the history of the survey, supporting our expectation that inflation will remain elevated in Q2 and likely Q3.”
“Still, the strong business conditions including trading conditions and profitability show that the economy is faring quite well and so far, demand is holding up in the face of higher inflation,” said Mr Oster.
For more information, please see the NAB Monthly Business Survey (April 2022)
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.