April 18, 2024

NAB Quarterly Business Survey – March 2024

Price growth edges lower despite reasonable economy


After signs of easing cost and price pressures through late 2023 as the economy slowed, the business survey suggests progress was more incremental through Q1. Business conditions appear to have stabilised at above-average levels and confidence also picked up (albeit still at negative levels), alongside improved but still weak forward orders. Capacity utilisation levels remain high. Materials availability issues appear to have abated but labour availability remained a significant issue for a third of firms and wage costs continue to be the top concern, alongside pressure on margins. With activity proving resilient, there was little improvement in cost growth measures in the quarter with both labour costs and materials cost growth still running at elevated levels – but forward-looking cost growth measures suggest firms expect some further moderation. Importantly, price growth measures are now tracking around a rate that, if maintained, would be consistent with inflation easing towards the top of the RBA’s target range.

Comments from NAB Chief Economist Alan Oster

Business conditions were steady at +10 index points. Trading conditions were unchanged, profitability ticked up while the employment index eased. Business confidence rose 4pts to -2 index points.

“Consistent with our monthly business survey, today’s release shows business conditions remained resilient at above-average levels through the start of the year,” said NAB Chief Economist Alan Oster. “Confidence remained weak but showed some improvement relative to the tail end of 2023.”

Expected business conditions fell to +12 index points at a 3-month horizon, down from +14 in Q4, but strengthened slightly over 12 months. Forward orders rose to -1 index point, capacity utilisation ticked up to 83.8%, while capex plans remained steady.

“Forward indicators in the business survey are, frankly, a little mixed with expectations for conditions holding up at reasonable levels but forward orders still negative,” said Mr Oster. “The resilience in expectations for business conditions over the next 12 months is a welcome sign that firms have at least some optimism that the activity can hold up this year and into 2025 – and that aligns with our forecasts for the economy.”

Reported cost growth eased only slightly from their Q4 rates, with labour costs growing at 1.2% and purchase costs growing at 1.1%. Price growth measures were little changed in Q1, with final product price growth steady at 0.7% q/q and retail price growth easing to 0.8% (down from 0.9%).

“There continue to be some positive signs of easing cost pressures for businesses but progress was more incremental through Q1,” said Mr Oster. “Importantly, forward-looking indicators of firms’ expectations for price growth suggest firms expect some further moderation.”

“Labour availability remained a significant issue for 33% of firms and wage costs continue to be a top concern, alongside pressure on margins,” said Mr Oster. “That pressure on margins is a sign that firms have less scope to pass through costs to end consumers which is ultimately one of the ways that monetary policy works to bring down inflation. Nonetheless we will be watching this closely.”

For more information, please see the NAB Quarterly Business Survey (Q1 2024)