February 2, 2023

NAB Quarterly Business Survey – December 2022

Confidence down with constraints remaining tight


Business confidence fell considerably in Q4 as concerns about global and domestic economic growth mounted. Still, business conditions remained strong, albeit easing from the highs seen in Q3. The easing in conditions was evident across industries and states, but all remained in positive territory. Leading indicators also remained fairly strong, including expectations for future business conditions and future employment – an outlook at odds with the low levels of confidence reported by firms. Supply-side constraints remained tight, with around 90% of firms reporting availability of labour as a constraint on output and around half of firms reporting availability of materials as a constraint (both largely unchanged). Cost pressures were also still elevated, although labour and materials cost growth eased slightly from Q3. Underlying wage indicators also edged down slightly after peaking in Q3, but wage costs remain the top issue affecting business confidence. Overall price growth edged lower, to 1%, but retail price growth was unchanged at 1.6% in the quarter.

Comments from NAB Chief Economist Alan Oster

Business conditions eased 5pt in Q4, to +18 index points. Trading conditions, profitability and employment all declined but remained at high levels. Conditions were down in every industry, with the largest falls in mining, wholesale, and finance, business & property – but all industries and states were still in positive territory.

Business confidence fell 9 points, to -1 index point. Confidence turned negative in most industries, but remained positive in transport & utilities and recreation & personal services. By state, confidence fell negative in Vic and Qld and was down to zero in NSW and WA, but improved in SA and Tas.

“Conditions remained strong in Q4 but eased a little from the highs seen earlier in the year, and indeed the Monthly survey indicates this easing continued through December. In addition, confidence fell more clearly as concerns about the economic outlook grew stronger” said NAB Chief Economist Alan Oster.

“The final months of the year were characterised by concerns about recessions in key economies overseas, as well as an anxious wait for signs of consumers tightening their belts as higher interest rates flowed through to borrowers,” said Mr Oster.  “Those concerns were clearly weighing on business confidence through Q4 despite the fact that demand was holding up.”

Expected business conditions eased but were still elevated at +18 index points at 3-month and 12-month horizons. Forward orders continued to soften but were still around the long-run average at +7 index points and capacity utilisation was at 84.8%. Capex intentions also remained strong at +26 index points.

“Despite the fall in confidence, leading indicators remain reasonable,” said Mr Oster. “Expected conditions over the coming months have fallen somewhat but remain at strong levels, and forward orders were around long-run average levels in Q4. That supports our view that, while the economy will likely soften considerably in 2023, at the moment firms don’t see a major slowdown.”

“Supply constraints remain very tight, with around 90% of firms continuing to report availability of labour as a constraint on output and around 50% reporting availability of materials as a constraint,” said Mr Oster. “Wage costs and availability of labour were once again the top issues affecting business confidence, reflecting the very tight labour market environment that businesses are facing.”

For more information, please see the NAB Quarterly Business Survey (Q4 2022)