Below trend growth to continue
Confidence volatile but conditions still strong
Business confidence fell back below zero in February, continuing a recent period of volatility. Still, business conditions remained strong with little change in the elevated levels of key subcomponents including trading conditions and employment. Conditions remain elevated across industries and states, with consumer-facing sectors clustered at a high level of around +20 index points and business-facing sectors clustered around +10 index points. Forward orders eased, weighed down by a significant decline in wholesale, but capacity utilisation remained elevated at 85.2%. Price and cost growth measures also remained high in February. Labour cost growth picked up further from a brief low of 2.1% in December, now at 2.8% in quarterly terms, while purchase cost growth was steady at 3.1%, though retail price growth eased slightly. Overall, the survey confirms the ongoing resilience of the economy through the first months of 2023 despite high inflation and the ongoing pass-through of higher interest rates to households. While we expect inflation likely peaked in Q4, price growth remains elevated and the survey suggests that while global goods-side pressures have abated somewhat, there has been less evidence of easing in services-side pressures. NAB continues to expect a more material slowdown in demand, but this will likely come later in 2023 when the full effect of rate rises has passed through.
Business conditions edged down 1pt to +17 index points in February, still a very strong level in the history of the survey. Trading conditions (+27 index points) and employment (+12) were steady at while profitability fell 4pts to +14.
“Business conditions remained at a very high level in the history of the survey in February,” said NAB Chief Economist Alan Oster. “In broad terms, consumer-facing sectors like retail and personal services are reporting conditions clustered around +20 index points, while business-facing sectors are clustered around a level of +10, which is also fairly strong.”
Business confidence fell 10pts to -4 index points, after a rising into positive territory in January. The fall was driven by wholesale, recreation & personal services, and finance, business & property. Across the states, confidence eased across the board but was still positive in trend terms everywhere but NSW and Qld.
“Confidence has been volatile over recent months.” Said Mr Oster. “Confidence fell late in 2022 as concerns about the global economic outlook increased. There was a respite in January as those concerns appeared to ease, but the decline in February suggests the outlook remains clouded.”
Leading indicators eased slightly. Forward orders fell 3pts to +3 index points, largely driven by a significant decline in the wholesale sector. Capacity utilisation also eased slightly but remains elevated at 85.2%.
Price and cost growth remained high in February. Labour cost growth picked up further, to 2.8% in quarterly terms, after a brief low of 2.1% in December. Purchase costs growth remained at 3.1%. Output price growth was also steady at 1.6% in quarterly terms, with the retail component easing slightly to 1.9%.
“There were mixed signals around prices in the February survey but overall, inflation pressures appear to have remained elevated through the beginning of the year,” said Mr Oster. “Labour costs have picked back up from their December low while purchase costs also remain elevated despite easing in global pressures.”
“Prices growth does appear to be easing in retail as global supply issues resolve,” said Mr Oster. “However, our survey shows little evidence of easing in services prices for consumers, which remains a key focus for the RBA.”
“Overall, the survey confirms the ongoing resilience of the economy through the first months of 2023, though we continue to expect a more material slowdown in demand later in the year when the full effect of rate rises has passed through.”
For more information, please see the NAB Monthly Business Survey (February 2023)
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