Growth, inflation and labour market all easing
Conditions hold up, price pressures ease
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 show ongoing resilience in March, edging lower but remaining well above the long-run average. Trading conditions remain very elevated, indicating that businesses continue to experience strong demand, and conditions are generally strong across states and sectors. Business confidence appears to have stabilised but remains below long run averages at -1 index points with deeper negatives in retail and wholesale. Importantly, price and cost growth measures showed some easing in March. Both labour cost growth and purchase cost growth eased after holding up in January and February at very high levels, and output price growth measures also ticked lower, albeit they remain well above ‘normal’ rates of growth with retail prices growing at 1.6% in quarterly equivalent terms (down from 2%). These results support expectations that inflation likely peaked in Q4, with the full Q1 CPI set to show some improvement when the data is released later in April. Still, the rate of price growth and underlying pressures remains well above ‘normal’ levels, and any moderation in inflation is likely to be gradual with much further to go to bring inflation down to the RBA’s target band.
Business conditions eased 2pts (unrounded) to +16 index points in March, remaining well above the long-run average. Employment eased 2pts to +10 index points and profitability was down 1pt to +13 index points, while trading conditions were broadly flat (unrounded) – but remain very elevated +26 index points.
“Business conditions have been resilient, slowly edging lower over the past few months but remaining well above their long-run average,” said NAB Chief Economist Alan Oster. “Trading conditions are particularly elevated, indicating that businesses continue to experience strong demand, and conditions are generally strong across states and sectors.”
Business confidence rose 3pts to -1 index point. There was a broad-based lift in confidence, led by manufacturing (up 8pts), while mining and construction edged lower. In trend terms, confidence was still negative in retail, wholesale, and finance, business & property but confidence was positive in all other industries. Across the states, only Qld was below zero in trend terms.
“Confidence appears to have stabilised, but it remains below average at -1 index point.” said Mr Oster. “Confidence was particularly poor in retail and wholesale, likely reflecting that firms are concerned about how much longer consumer spending will hold up.”
Leading indicators were little changed. Forward orders edged higher, up 1pt to +4 index points, as much of the February fall in wholesale was reversed. Capacity utilisation was 0.1% lower but remains well above average at 85.1%.
Price and cost growth showed some easing in March. Labour cost growth was 1.9% in quarterly equivalent terms, down from 2.6% in February, and purchase cost growth was 1.8%, down from 3%. Overall price growth was 1.2% (down from 1.6%) and inflation in the retail sector was 1.6% (down from 2%).
“There are some encouraging signs that some of the upstream cost pressures that have driven inflation to date are now easing considerably, particularly around non-labour inputs,” said Mr Oster. “Labour cost growth has also eased from its July peak, but with a very tight labour market the outlook wage pressure could remain a factor.”
“Importantly, output price growth in key consumer facing sectors like retail and recreation & personal services also eased in March,” said Mr Oster. “This is in line with our view that inflation likely peaked in Q4, but will remain elevated in Q1 when the full quarterly CPI is released.”
“Overall, the survey suggests the economy is still holding up and indicates there has been some easing in inflation, although there is still a long way to go to bring inflation back down to the RBA’s target band and growth could be more volatile from there.”
For more information, please see the NAB Monthly Business Survey (March 2023)
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.