Business conditions held steady in Q4 as businesses wrapped up a challenging year. There was a slight improvement in business confidence, though confidence remains in negative territory. However, expected business conditions in the next 12 months and capex plans in the next 12 months both improved – possibly boosted by the prospect of rate cuts, recovering consumer demand and easing costs growth over 2025. Medium term inflation expectations improved in Q4, with a sharp drop in the share of businesses expecting medium term inflation of 3.5% or more. Labour costs and purchase costs both eased in Q4 (in line with expectations from the Q3 survey) though wage costs remained the top issue affecting business confidence. Easing cost pressures and the stabilising of business conditions, if sustained, may be a sign that businesses are now passing the trough in sluggish growth. However, uncertainty around the extent of the consumer recovery and the timing of rate cuts may continue to weigh on both business conditions and confidence in 2025.

Survey Details

• Business conditions was unchanged at +3 index points, with little change across components. Trading and profitability both fell by 1pt while employment was unchanged.
• By industry, conditions fell most in retail (-15pts), finance (-13pts), manufacturing (-12pts) and transport & utilities (-11pts). Manufacturing conditions weakened for the sixth consecutive quarter and is now at -21 index points. Recreation & personal services, construction, wholesale, and business services industries recorded small upticks.
• By state, conditions eased slightly across all states except NSW and Tas. SA and Vic became more negative, while Qld and WA remained firmly positive.
• Business confidence improved 3pts to -4 index points. There was a substantial jump in mining confidence (up 25pts) to re-enter positive territory. Smaller gains were recorded across most other industries though there was a notable 6pt fall in retail (taking it to -19 index points).
• Leading indicators were more mixed. Expected business conditions at the 3-month horizon was marginally lower, but there was a strong uptick in the 12-month horizon (up 5pts), which aligned with an uptick in capex plans over the next 12 months (up 3pts). This suggests that, though current conditions remain challenging, businesses are anticipating better conditions across the next year. Forward orders remained negative at -4 index points, and capacity utilisation eased to 82.4%.
• Labour indicators were largely unchanged. The share of firms reporting availability of labour as a constraint was steady at 82%.
• Reported cost growth eased with labour costs growing at 0.9% q/q (down from 1.2%) and purchase costs growing at 0.7% (down from 1.0%).
• Price growth measures mostly eased in Q4, though overall final product price growth was unchanged at 0.4% q/q. Retail prices were at 0.5% q/q, down from 0.7% in the previous survey.
• Wage costs remained the top issue affecting business confidence. Pressure on margins, demand and availability of labour remain near to the top of the list, though are converging with long-run averages.

For more information, please see the NAB Quarterly Business Survey (Q4 2024)