Overview

Business conditions rose in December, largely reversing the fall seen in November and almost returning to the long-run average.  Most industries recorded an improvement in business conditions, with retail re-entering positive territory for the first time since November 2023. However, conditions in retail remain significantly weaker than most industries, with services sectors continuing to outperform the goods sectors. Confidence also edged up but remains well below the long-run average – with forward orders following a similar trajectory.  Overall, the survey points to improvements across most activity measures, though confidence remains weak. Capacity utilisation increased slightly and continues to track at above average levels but has eased substantially from the levels seen through late 2022 and early 2023. Most industries reported an uptick in both purchase cost and final product price growth in the month. Labour cost growth on the other hand continues to ease despite the ongoing strength in the labour market.  Overall, the survey continues to show some resilience in activity but also that businesses continue to face a challenging cost environment amid slower output price growth in late 2024.

Comments from NAB Chief Economist, Alan Oster

Business conditions improved in December, up 3pts to +6 index points, almost returning to the long run average level. Conditions improved across all industries except transport & utilities, construction and wholesale, including a notable uplift in retail conditions which re-entered positive territory for the first time since November 2023.

“Conditions remain strongest in services sectors,” said NAB Chief Economist Alan Oster. “But there was a noticeable improvement in retail conditions, which may reflect a pick-up in consumer spending at the end of 2024. We will have to wait and see whether this improvement is sustained over 2025.”

By state, conditions improved in most states except WA. Conditions rose sharply in SA but it remains weakest of all states in trend terms.

Business confidence went up slightly by 1pt to -2 index points, remaining well below average levels. Confidence by industry was mixed, with a sharp uptick in retail industry confidence and large declines in mining and construction.

“Confidence rose in November but remains well below average,” said Mr Oster. “Confidence has been below average since early 2023, with this trend holding at the end of last year.”

Forward orders edged up 3pts to -2 index points in December. There were notable improvements in mining and retail orders over the month, but both remain the weakest of all industries in trend terms.

Capacity utilisation rose to 82.8% in December, still well above its long-run average of 81.3%. Capex was largely unchanged but also remains well above average.

“Capacity utilisation rose in the month and is still notably above its long run average despite the slow growth we have seen in the economy.” Said Mr Oster. “Nonetheless, capacity utilisation is well down on the levels seen through late 2022 despite only a small easing through 2024. This suggests that while the economy continues to rebalance, the process remains gradual”.

Purchase cost growth was slightly higher in December, edging up to 1.5% in quarterly equivalent terms. Labour cost growth was slightly lower at 1.4% in quarterly equivalent terms.

“The easing in labour cost growth at the same time employment conditions improve suggests that wage pressures continue to soften.” said Mr Oster.

Output price growth ticked up by 0.3ppts to 0.9% in quarterly equalised terms. Retail prices edged up slightly to 0.7%.

“The uptick in purchase cost growth and final product prices reminds us that businesses continue to face some price pressures.”

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