July 9, 2024

NAB Monthly Business Survey: June 2024

Conditions ease further, confidence bounces


Business conditions edged down further in the month, continuing the long running trend since peaking in late 2022. Conditions declined in wholesale, construction, manufacturing and finance, business & property in the month, with the non-mining goods sectors now clearly softer than the services sectors. Retail, despite increasing in the month, remains weakest (and the only industry in negative territory) in trend terms. Business confidence – driven by a broad-based increase across industries – rose sharply in the month to its highest level since early 2023. While the activity side of the survey has shown a consistent easing, capacity utilisation remains high. This all lines up with the slowing in activity we have seen more broadly but also with a still high level of demand, relative to supply in the economy. Consistent with this, price and cost growth variables generally remain elevated. That said, encouragingly, both labour and purchase cost growth largely reversed last month’s increase, and output price growth also slowed.

Comments from NAB Head of Australian Economics, Gareth Spence

Business conditions fell 2pts to +4 index points and are now clearly below the long-run average. The fall was driven by declines in employment (down 6pts to 0 index points) and profitability indices (also down 1pt to +2 index points) while trading conditions were broadly flat at +10 index points (unrounded).

“Business conditions continued their now long running easing trend in June,” said NAB Head of Australian Economics Gareth Spence. “They are now below average, reflecting the slowing in the economy through late 2023 and early 2024.”

“Of note is the sharp decline in the employment index in the month,” said Mr Spence. “While its only one month’s read, the employment index is now below its long-run average and may be signalling that the broader slowing in the economy is flowing through more strongly to labour demand.”

Business confidence rose 6pts to +4 index points driven by an increase in 7 out of 8 industries. The increase in the month was led by increases in manufacturing and wholesale while the remaining industries saw 6pts+ increases except for construction which declined 3pts. In trend terms, the goods distributions sectors – wholesale and retail – remain weakest and the only two industries in negative territory at -7 index points.

“Business confidence rose relatively sharply in the month and is now back into positive territory and at its highest level since early 2023,” said Mr Spence.

Other activity indicators were mixed in the month. Forward orders were flat at -6 index points (unrounded) while capex fell 5pts to 0 index points. Capacity utilisation edged up and remains well above average at 83.5%.

“Forward orders remain well into negative territory and have been there for some time,” said Mr Spence. “The key driver of weak forward orders over recent months have been the retail and wholesale sectors, though manufacturing weakened further in the month and is also now very weak.”

Labour cost growth eased to 1.8% in quarterly equivalent terms (from 2.3% in May) and purchase cost growth also eased to 1.3% (from 1.7%). Product price growth fell to 0.7% overall (from 1.1%). Retail price growth was broadly stable at 1.5%, while recreation & personal services prices fell to 0.7% (from 1.1%).

“Encouragingly, the key price and cost growth measures reversed their increase from last month,” said Mr Spence. “That said, retail price growth was broadly stable and is high despite the weaker activity outlook and confidence in the industry. However, also important for consumer prices on the services side, recreation & personal services price growth fell back to 0.7% on a quarterly basis.”

“Overall, our take on the survey is that it continues to signal another soft quarter in Q2,” said Mr Spence. “But also that capacity utilisation is still high with demand and supply yet to fully normalise. Price pressures continue to ease in a trend sense though the data certainly remains bumpy.”

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