Below trend growth to continue
Cost pressures ease amid resilience in activity
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Overall, the survey continues to point to ongoing resilience in activity with conditions down slightly in September but remaining above average at +11 index points, where the index has hovered since May. Importantly, capacity utilisation remains high and there has been gradual improvement in forward orders including some improvement in retail forward orders in the month – albeit still at depressed levels. Business confidence was steady and while still sitting well below average, has been broadly neutral for several months suggesting firms are less concerned about the outlook than was the case previously. The survey also showed some positive signs for inflation with cost pressures and price growth easing. Labour cost growth – which spiked to 4.0% in quarterly terms in July – fell to 2.0% in September, and purchase cost growth also eased materially, though both remain elevated. Output price growth eased, driven by an easing rec & personal (0.8%), while retail price growth remained elevated (1.8%). The upcoming Q3 CPI release is still expected to show strong inflation for the quarter as a whole with energy, rents, and a range of services prices likely to contribute strongly. Nonetheless, the September survey results suggest the momentum of some of the key cost pressures driving inflation may have started to step back in a welcome sign for the broader inflation outlook.
Business conditions eased 3pts to +11 index points, reversing a small rise in August. All three sub-components eased, with trading conditions down 3pts, profitability down 5pts and the employment index down 1pt, but all remain above their historical average levels.
“Business conditions ticked down in September but remained above average,” said NAB Chief Economist Alan Oster. “The conditions index has been hovering around its current level of +11 index points since May, suggesting the economy has remained in reasonable shape through the middle of the year.”
Business confidence was steady at +1 index point. Forward orders rose 2pts to +2 index points, while capacity utilisation edged down but at 84.2% remains very high.
“Business confidence, like the conditions index, has been broadly steady for a number of months now,” said Mr Oster. “A +1 index points, the confidence index indicates firms are evenly divided in terms of outlook.”
“There has been a gradual improvement in forward orders which are now back into positive territory,” said Mr Oster. “This included some improvement in retail forward orders in the month, which may partly reflect the ongoing normalisation of supply chains and order backlogs as well as the wider demand outlook.”
Price and cost growth stepped down in the month. Labour cost growth eased to 2.0% in quarterly equivalent terms, and purchase cost growth declined to 1.8%. Overall price growth also eased to 1.0%, and while retail price growth was unchanged at 1.8%, recreation & personal services price growth eased to 0.8%.
“The survey showed some positive signs for inflation with cost pressures and price growth easing in the month,” said Mr Oster. “Minimum wage impacts and movements in oil prices have caused some volatility in cost pressures recently but the September survey results suggest the easing trend seen earlier in the year may continue.”
“The upcoming Q3 CPI release is still expected to show strong inflation for the quarter as a whole with energy, rents, and a range of services prices likely to contribute strongly,” said Mr Oster. “Nonetheless, the September survey results suggest the momentum of some of the key cost pressures driving inflation may have started to step back in a welcome sign for the broader inflation outlook.”
For more information, please see the NAB Monthly Business Survey (September 2023)
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