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Overview

August saw the strength in the survey over recent months roll on, with business confidence and conditions both edging higher. Confidence reached +10 index points, continuing to rebound from the June low. Business conditions rose to +20 index points with trading conditions lifting, while employment and profitability are still strong. Conditions remain strong across the states and in most industries, although the construction sector saw both conditions and confidence fall. Low profitability remains a challenge in the construction sector and the brief rally in the July survey now looks like an outlier. Reinforcing the strong overall conditions, capacity utilisation remained at a very high level at 86.3%, and the near-term outlook is also positive with forward orders rising. Measures of cost growth eased slightly in the month after reaching record rates over recent surveys but remain very high by historical standards. Labour costs grew 3.5% in quarterly terms while purchase costs grew 4.4%. With demand strong, firms continue to pass costs through to consumers with overall product prices growing 2.4% and retail prices growing at an unchanged 3.3%. Recreation & personal services price growth was also unchanged at 2%. Overall, the survey showed no signs that the strong conditions of recent months – including the strength seen in official consumption and retail sales data – had begun to moderate yet.

Confidence rose 3pts to +10 index points, while conditions rose 1pt to +20 index points. Trading conditions rose 4pts to +30 index points, while profitability eased 1pt (unrounded) to +16 index points and employment eased 2pts to also sit at +16 index points.

“The recent strength in business conditions carried into August,” said NAB Group Chief Economist Alan Oster. “Official data for retail sales in July confirmed spending remained robust, as suggested by the previous survey, and today’s release shows little sign that August was much different. Conditions are strong across most industries other than construction, where profitability remains a challenge.”

“Confidence rose again in August, as did other forward indicators in the survey,” said Mr Oster. “Confidence took a hit around June as interest rates first began to rise but it seems that firms’ initial concerns about the impact have eased and a more positive outlook is prevailing, at least for the time being.”

Capacity utilisation eased from 86.7% to 86.3%, still well above previous highs, while forward orders increased 2pts to +13 index points. “Capacity utilisation remains at near-record highs in the history of the survey, reflecting that businesses continue to operate near their limits,” said Mr Oster.

Cost indicators eased from the records set in July but remained elevated. In quarterly terms, purchase costs grew 4.4% in July, and labour costs grew 3.5%. Price measures were little changed in the month, with overall product price growth of 2.4% and retail price growth of 3.3% in quarterly terms.

“Cost growth moderated somewhat in August, likely reflecting a range of factors including some easing in commodity prices and, possibly, the passing of the one-off effects of July’s minimum wage change,” said Mr Oster. “Still, growth in purchase costs and labour costs remains very strong.”

“In terms of prices, there was little change with retail prices growing at a very rapid 3.3% in quarterly terms,” said Mr Oster. “Recreation & personal services price growth was also unchanged at a very strong 2%. This suggests firms are continuing to pass through price increases to consumers, setting up another strong inflation result for Q3.”

“Overall, the survey indicates that demand remained strong through August,” said Mr Oster. “We continue to expect that inflation and rising interest rates will eventually begin to weigh on household budgets more materially, slowing the pace of consumption growth and, in turn, helping to ease inflationary pressure. So far, however, it appears this dynamic is yet to take hold.”

For more information, please see the NAB Monthly Business Survey (August 2022)