February 1, 2024

NAB Quarterly Business Survey – December 2023

Effects of monetary policy increasingly evident


Softening demand and improving supply chains saw business’ cost pressures and output constraints continue ease in Q4 as the economy showed increasing signs of the impact of tighter monetary policy settings. The quarter saw business conditions soften – continuing a steady easing that was evident over 2023 as the post-pandemic rebound faded and both higher inflation and interest rates began to weigh on activity. Business confidence turned significantly negative in the quarter as the outlook became increasingly clouded. However, the share of firms reporting materials availability as a significant constraint fell below 5% and purchase cost growth eased further. Likewise, labour cost growth eased as the impact of the minimum wage adjustment in Q3 waned, though wage pressure remains the most common issue affecting business confidence. Labour availability also remains a significant output constraint for 35% of firms. With activity slowing, pressure on margins is now a top issue and price growth slowed further in the quarter, in line with official data showing easing inflation.

Comments from NAB Chief Economist Alan Oster

Business conditions declined 4pts to +9 index points in Q4, driven by declines across all three sub-components. Trading conditions fell 6pts to +12 index points, profitability declined 5pts to +5 and employment eased 1pt to +9.

Business confidence declined 4pts (unrounded) to -6 index points. Confidence fell in most industries (with the exception of transport & utilities) and remains very weak in retail at -20 index points.

“Consistent with our monthly business survey, today’s release shows business conditions eased further in Q4, continuing a trend of slowing activity that occurred across the course of 2023,” said NAB Chief Economist Alan Oster. “Confidence ended the year in negative territory, reflecting the weak outlook for activity in the near term.”

Expected business conditions fell to +12 index points at a 3-month horizon, down from +17 index points in Q3, and forward orders turned negative at -3 index points. Capacity utilisation fell but remained elevated at 83.5%, while capex plans remained steady.

“Forward indicators in the business survey continued to soften, and forward orders also turned negative in the quarter reflecting that the pressures on consumers from inflation and interest rates are weighing on demand,” said Mr Oster.

Cost and price growth measures continued to moderate gradually. Purchase costs grew at 1.2% (down from 1.4% in Q3). Labour cost growth was 1.2% (from 1.8% in Q3). Final product price growth was 0.7% q/q (down from 0.9% in Q3) with retail price growth easing to 0.9% (down from 1.1%).

“Cost pressures on businesses continued to ease in the quarter, and materials availability issues finished the year at fairly low levels,” said Mr Oster. “However, labour availability remains a significant issue for a third of firms and wage pressures remain the top concern for businesses.”

“Notably, the slowdown in demand has meant firms appear to have had less scope to pass on costs to consumers,” said Mr Oster. “Survey measures of price growth eased in Q4 – in line with the easing seen in the CPI – and pressure on margins is the second top issue for businesses. This will be a key challenge for businesses to navigate in 2024 as we expect demand to remain subdued, at least through the first half of the year.”

For more information, please see the NAB Quarterly Business Survey (Q4 2023)