February 13, 2024

NAB Monthly Business Survey: January 2024

Conditions dip below average, price growth ticks up

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Business confidence remained low and conditions eased to be just below their long-run average, ending a two-year run of above average conditions while forward orders remain soft. By industry, retail conditions remained at a low level and there are signs of easing in the services sectors. Nonetheless, capacity utilisation remained elevated after rebounding in the month and businesses continued to report elevated rates of cost growth for both labour and other inputs. There was a noticeable pick up in reported price growth in retail and across product prices more generally, indicating that firms still have at least some scope to pass through cost pressures to consumers. The extent to which this remains the case will be a significant focus in 2024 with pressure on margins an increasingly common concern in the NAB Quarterly Business Survey. In addition, attention is likely to be focussed on the slowdown in activity, with any further easing in conditions to take the survey’s activity measures more materially below the long run average.

Comments from NAB Chief Economist Alan Oster

Business conditions decreased 2pts to +6 index points and are now just below the long-run average. Trading conditions fell 3pts to +8 index points while both profitability (down 1pt) and employment (down 2pts) edged down to +5 index points. Both the trading and profitability indexes are now below average, though employment remains above its long run average.

“The gradual easing in business conditions continued in January, with the headline conditions index now just below its long-run average,” said NAB Chief Economist Alan Oster. “Both profitability and trading conditions are now below average with conditions supported somewhat by still above-average employment conditions.”

“The easing in conditions in January was led by a pull-back in the services sectors though conditions in retail also remain weak,” said Mr Oster.

Business confidence edged up 1pt but remains very weak. Manufacturing and construction supported the improvement in the month. In trend terms, confidence remains relatively weak across industries with the goods industries (retail and wholesale) softest.

“Confidence remains weak as it has for some time, consistent with ongoing pressures across the economy with growth clearly slowing in the back half of 2023, and cost growth still high notwithstanding some easing over H2 2023,” said Mr Oster.

“Rates will remain high for much of the year and price pressures are still a concern against a raft of global uncertainty. We will keep a close watch on how confidence evolves through early 2024 as price pressures ease further and the focus on the easing phase of the rates cycle grows,” said Mr Oster.

Forward orders rose 1pt to -1 index points but remains soft. Capacity utilisation rebounded to 83.6% and remains well above its long run average.

Input cost growth measures were little changed in the month, with labour cost growth unchanged at 2% (in quarterly equivalent terms) while purchase cost growth edged up slightly to 1.8%. Output prices growth rebounded somewhat, with retail price growth rising to 0.9% in quarterly terms (from 0.5%) and survey wide final products prices growth rose to 1.2%.

According to Mr Oster, “Price pressures remain solid despite the ongoing easing in activity measures. However, they typically lag activity in the economy and we expect an ongoing easing in price pressures across the economy in early 2024. The survey will provide a key early read on how things are tracking in both the retail and services sectors.”

“For now, the survey remains consistent with what we know from a range of other data. Capacity utilisation remains high, despite the slowing in growth over the second half of 2023 and price pressures are easing, with hopes they settle well below where they are now,” said Mr Oster.

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