April 9, 2024

NAB Monthly Business Survey: March 2024

Improvement in supply-demand balance still gradual

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Business conditions and confidence were little changed in March, continuing the trend of above-average activity indicators alongside below-average confidence that has defined the NAB Business Survey for much of the past year. By industry, there were positive signs for retail and construction which both saw improvement in confidence and conditions in the month, though in trend terms conditions remain weakest in these two rate-exposed sectors. WA firms continue to report the strongest conditions among the mainland states. Forward orders improved – especially in retail – but are still negative and below average. There are tentative signs that supply and demand are coming into better balance with capacity utilisation continuing to ease albeit gradually and from a high level. In line with this, the month saw some modest easing in the pace of labour and materials cost growth but both remain elevated, and retail price growth also remained strong at 1.3% in quarterly equivalent terms. In short, progress on inflation is likely to be gradual ahead of the full Q1 CPI result due later in April.

Comments from NAB Chief Economist Alan Oster

Business conditions fell 1pt to +9 index points. Trading conditions and employment were both broadly steady, while profitability declined 4pts. Business confidence rose 1pt to +1 index point, remaining below average.

“We’ve now seen conditions running a little above average and confidence a little below average for the better part of a year, which is a fairly unusual result in the history of the survey,” said NAB Chief Economist Alan Oster. “Fundamentally, it tells us that firms have continued to be a bit concerned about the outlook even as the economy has remained resilient.”

“At some point, we have to expect these two headline measures to come back into better balance, either because firms’ concerns are allayed and the outlook improves, or because the economy slows further – and of course we hope it will be the former rather than the latter,” said Mr Oster.

“At an industry level, there was some positive news with a strong rise in conditions and confidence in both retail and construction, which are two of the sectors we have been most concerned about,” said Mr Oster. “In trend terms, conditions are still weakest in these two sectors but it is nonetheless encouraging. We will wait to see if they improve further over the months ahead.”

Forward orders rose 3pts to -1 index point, with some improvement in retail (now -19 index points in trend terms). Capex was steady at +7 index points, while capacity utilisation eased slightly, to 83.2%.

“The pickup in forward orders this month is another positive sign, though orders remain in negative territory,” said Mr Oster. “More broadly, the ongoing gradual easing in capacity utilisation is a sign that, incrementally, supply and demand are coming into better balance as we get further from the period of COVID disruptions and border closures and monetary policy works to slow the economy.”

Labour cost growth eased to 1.6% in quarterly equivalent terms (from 2.0%) and purchase cost growth also slowed to 1.4% (from 1.8%). Product price growth eased to 0.7% in quarterly equivalent terms (from 1.2%). Retail price growth edged down to 1.3% (from 1.4%), while recreation & personal services prices grew at 0.9% (from 1.4%).

“Cost pressures remain elevated but have eased a little more this month, but retail price growth remains elevated,” said Mr Oster. “Fundamentally, this aligns with our expectation that progress on bringing inflation back to target will be gradual from here, and we expect that to be further reinforced by the Q1 CPI result later in April.”

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