January 23, 2024

NAB Monthly Business Survey: December 2023

Business conditions cool as retail price growth slows

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Business conditions eased further in December, continuing a cooling trend that gradually brought conditions back to around their long-run average over the course of 2023. Survey measures of trading conditions and employment fell in the month, while capacity utilisation also eased. The decline in conditions was led by manufacturing and construction. Elsewhere, conditions remained weak in retail but remained elevated in the services sectors. Business confidence rebounded on the back of a recovery in retail confidence but remains well below long run average. Importantly, there were clear signs of further easing in input cost pressures in the month – with labour and purchase cost growth easing. Retail price growth also fell sharply. Some price adjustment through the Black Friday and post-Christmas sales period is normal but the improvement in the survey’s seasonally adjusted price measures likely signals some easing in the underlying pace of inflation. Overall, the survey results show that economic growth had eased considerably by the end of 2023 after performing better than expected for much of the year, and this slowing is beginning to translate into improvement in inflation indicators. Nonetheless, businesses remain cautious about the outlook with growth likely to remain subdued for the time being.

Comments from NAB Chief Economist Alan Oster

Business conditions decreased 2pts to +7 index points, remaining just above the long-run average. Trading conditions fell 3pts to +10 index points and employment was also down 2pts (unrounded) to +7 index points, while profitability remained steady at +6 index points.

“Conditions eased in December and are now firmly around their long-run average level,” said NAB Chief Economist Alan Oster. “Conditions started 2023 at a very elevated level but gradually eased over the year as the economy slowed.”

“The decline in conditions in December was particularly notable in manufacturing and construction, but conditions rose in recreation & personal services and transport & utilities so there are different movements occurring across sectors.”

Business confidence rose 8pts to -1 index points. There was a broad-based lift in confidence, led by mining and retail, while manufacturing edged lower. In trend terms, most industries remained in negative territory with the exception of mining and transport & utilities

“Overall, both confidence and conditions are softest in manufacturing, retail and wholesale which reflects that consumers have been cutting back on spending as time has gone on,” said Mr Oster. “There was an encouraging pickup in confidence in the retail sector in December, but it remains to be seen if this will be maintained.”

Leading indicators were mixed. Forward orders rose 1pt to -3 index points despite large falls in transport & utilities, retail and mining. Capacity utilisation edged lower but at 82.7% remains above average.

Price and cost growth declined sharply in the month. Labour cost growth eased to 1.8% in quarterly equivalent terms (from 2.3% in November), and purchase cost growth declined to 1.6% (from 2.5%). Overall price growth eased to 0.9% (from 1.2%), with retail price growth slowing to 0.6% (from 1.8%).

“There was a marked fall in retail price growth in December,” said NAB Chief Economist Alan Oster. “The sales periods around Black Friday and Christmas likely have played a role here but this is nonetheless an encouraging sign that inflation may have eased at the end of the quarter.”

For more information, please see the NAB Monthly Business Survey (December 2023)