Below trend growth to continue
Constraints still tight but prices past their peak
Most businesses continued to report facing constraints on output in Q1 of 2023. Labour shortages eased only slightly, despite the strong rebound in migration, with some 87% of firms reporting availability of labour as a constraint on output (down from a peak of 91% in 2022). There was somewhat more improvement on inputs as supply chains improved, with 43% of firms reporting materials as a constraint (down from a peak of 53%). Capacity utilisation also rose in Q1 to 85.5% and business conditions remained elevated, in line with the Monthly survey, though confidence fell. Importantly, cost and price growth measures showed some signs of moderation, supporting expectations that inflation may have peaked in Q4. Labour cost growth ticked down to 1.4% in Q1 (from 1.6%), although wage growth is still clearly the most significant issue affecting business confidence and the share of firms expecting wage pressures to increase over the next six months ticked higher, to 75%. On the input side, purchase cost growth eased slightly to 1.5% (from 1.8%). Importantly, overall price growth was broadly stable and retail price growth eased to 1% (from 1.5%).
Business conditions eased 4pts to +16 index points. Trading conditions, profitability and employment all declined but remain above their long-term averages. Conditions rebounded in mining but were down across other sectors, though all states and sectors were strong with only construction (at +4 index points) below a level of +10.
Business confidence fell 3pts, to -4 index points. Confidence was weakest in retail and wholesale, while transport & utilities and mining remained positive. By state, the largest falls were in Vic and NSW with SA and Tas holding up.
“Consistent with our monthly business survey, today’s release confirms business conditions remained resilient through the first quarter of 2023 at levels well above average,” said NAB Chief Economist Alan Oster. “This strength remains broad based and leading indicators are also holding up, although business confidence is now clearly negative.”
Expected business conditions were around +20 index points at both 3-month and 6-month horizons, while forward orders eased only slightly, from +7 index points to +5. Capacity utilisation rose to 85.5% and 12-month capex intentions also remained strong at +27 index points.
Some 87% of firms reported availability of labour as a constraint on output, while the share of firms reporting materials availability as a constraint edged lower, to 43%.
“We have been watching closely to see how quickly the pickup in migration would help to address some of the tightness in the labour market,” said Mr Oster. “For now, at least, there has been little improvement in the share of firms reporting labour as a constraint on their output.”
“We have also anticipated that the improvement in global supply chains would eventually begin to ease the shortages faced by businesses,” said Mr Oster. “There has been an improvement in the share of firms reporting that materials availability is a constraint, but at 43% this is still an issue for many more firms than normal in the survey.”
“There has been some moderation in the rate of growth in costs, but these pressures also remain elevated,” said Mr Oster. “Inflation indicators in the survey also moderated somewhat in Q1 with retail price growth easing to 1% from 1.5% in later 2022. This further reinforces that inflation likely peaked in Q4 but it clearly remains well above the RBA’s target band.”
For more information, please see the NAB Quarterly Business Survey (Q1 2023)
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