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Overview

Business conditions eased in April and all three sub-components are now back around their long-run average, while confidence remained steady albeit below average in the month. The decline in the employment index back to average levels is perhaps the most notable shift after a period of persistent out-performance in the labour market – though at +2 index points, this measure is not signalling outright declines in employment. Forward orders also fell in the month, driven by large movements in mining, manufacturing and construction, while the level of forward orders also remains negative in retail and wholesale. That said, capacity utilisation was unchanged and still above average, and capex remains elevated. In terms of costs, there was some moderation across both labour and input purchases, and retail price growth slowed to 0.9% in quarterly equivalent terms, stepping down from the strong price growth seen in Q1 in both the survey and official inflation data. Overall, these signs of slowing activity and easing costs support the outlook for gradual improvement in inflation from here, but how quickly this occurs remains to be seen.

Comments from NAB Chief Economist Alan Oster

Business conditions fell 2pts to +7 index points, and are now around the long-run average. Employment declined 5pts (unrounded) to +2 index points, while trading conditions fell 2pts and profitability was steady.

“All three components of business conditions were back at their long-run averages in April,” said NAB Chief Economist Alan Oster. “In some ways this marks a bit of a milestone after a long period in which conditions have been gradually easing from the very high levels seen in 2022, reflecting slowing economic growth.”

“Perhaps the most notable shift in April was the fall back in the employment index to around its average at +2 index points,” said Mr Oster. “The strength we have seen in the labour market has been very impressive, and strong labour demand has been a key driver of this. The April survey result suggests this may have now normalised somewhat, at least in the business sector.”

“At an industry level, we continue to see a trend of stronger conditions in services sectors such as finance, business & property, transport, and recreation & personal services,” said Mr Oster. “Retail conditions remain the most concerning, in line with the subdued outcomes we have seen in official retail sales data.”

Business confidence was unchanged at +1 index point. Forward orders fell 6pts to -7 index points. Capex was steady at +8 index points, while capacity utilisation remained at 83.2%.

“April saw another fall in forward orders, this time driven by mining, manufacturing and construction,” said Mr Oster. “Retail and wholesale forward orders are also quite negative, so that is a worrying sign for the outlook. However, we are still seeing a persistently high level of capacity utilisation and robust capex index which suggests businesses are not necessarily experiencing a steep decline in future demand.”

Labour cost growth eased to 1.5% in quarterly equivalent terms (from 1.7%) and purchase cost growth also slowed to 1.2% (from 1.5%). Product price growth lifted to 0.9% (from 0.7%). Retail price growth eased to 0.9% (from 1.4%), while recreation & personal services were steady at 0.9%.

“There was some further improvement in the pace of cost growth in April, as well as a step down in the pace of retail price growth after elevated readings in the first few months of the year,” said Mr Oster. “That is an optimistic sign for the prospects of some easing in inflation in Q2, though we will have to wait see how this evolves over the coming months.”

For more information, please see the NAB Monthly Business Survey (April 2024)