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Overview

Business confidence turned negative in November, falling below zero for the first time since December 2021, while conditions remained elevated at +20 index points despite easing 2pts in the month. Conditions remain strong across industries with only construction and finance, business & property below +20pts in trend terms, and conditions have also held up across the states. With activity holding up there are few signs of any turnaround in inflation, with cost growth largely unchanged at elevated levels on both the labour and purchase cost side, and retail prices continuing to rise at a rapid rate. Overall, the survey highlights a growing concern that the economy’s strength over 2022 is set to come to an end as we enter 2023, and forward orders have softened from +14 in September to +5 in November, reflecting a more uncertain outlook. In fact, the gap between current business conditions and business confidence is now at a record level in the history of the survey – with the exception of March 2020 – pointing to heightened concerns about the resilience of the economy in the period ahead as inflation and higher rates weigh on consumers and global growth slows.

Comments from NAB Chief Economist Alan Oster

Business conditions fell 2pts to +20 index points. All three subcomponents eased by 2pts, with trading conditions now at +28 index points, profitability at +20 index points and employment at +13 index points.

“Conditions continued to hold up through November,” said NAB Chief Economist Alan Oster. “There was a slight softening across a number of industries but the level of business conditions really still remains elevated across the board including in key consumer-facing sectors such as retail and recreation & personal services, and across the states.”

Business confidence fell 4pts to -4 index points, now in negative territory for the first time since December 2021. In trend terms, confidence is now negative in retail, finance, business & property, recreation & personal, and transport & utilities. Across the states, confidence is in negative territory everywhere excepts SA and Tas.

“Confidence is now negative, for the first time this year, despite the strength in conditions,” said Mr Oster. “The gap between current business conditions and business confidence is now at a record level in the history of the survey – with the exception of March 2020 – pointing to heightened concerns about the resilience of the economy in the period ahead as inflation and higher rates begin to weigh on consumers.”

Leading indicators were slightly softer with forward orders edging down 3pts to +5 index points and capacity utilisation also slightly down albeit well above average at 85.2%.

“Forward orders have softened over recent months, in line with a more uncertain outlook for the economy and especially consumer demand heading into 2023,” said Mr Oster.

Costs growth measures showed little sign of easing, with labour costs growth edging up to 3% in quarterly equivalent terms (from 2.8% in October) and purchase costs growth tracking at 3.9% (from 4.1% in October). Price growth measures also remained elevated with overall price growth steady at 2.0% in quarterly terms. Retail prices growth edged up to 2.9% (from 2.7% in October), while recreation & personal services prices rose 1.4% (from 1.5%).

“Cost pressures from purchase costs and labour costs have eased a little from their peaks in the middle of the year but have remained very elevated,” said Mr Oster. “Survey measures of price growth remained very strong in November with little sign of any turnaround in inflation, and we continue to expect a strong Q4 CPI print.”

“Overall, the survey suggests the economy powered through November with consumers still spending in the run up to Christmas,” said Mr Oster. “However, firms have become increasingly pessimistic about the future as they look ahead to a slowing global economy and a period of weaker consumption as inflation and higher rates weigh on households.

“Whether, and how soon these fears are realised remains to be seen however, and we will continue to monitor spending trends closely over coming months,” said Mr Oster.

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