Overview

A range of business survey measures continued to soften in Q3, with signs that the current period of slow economic growth is beginning to bring supply and demand into better balance. Business conditions and confidence both fell in the quarter, as did expectations for conditions and employment over the next 12 months. There has also been a noticeable easing in capacity utilisation, albeit at 83.0% the level remains above historical averages. Still, there was little progress on cost growth pressures in the quarter and labour availability remained a significant constraint for one in three firms – effectively unchanged over the past year. On balance the softening in activity continues to gradually pass through to prices with retail price growth in the survey remaining at 0.7% in Q3 but wider product prices easing to 0.4%, led by softening in the recreation & personal services component.

Comments from NAB Head of Australian Economics Gareth Spence

Business conditions fell 3pts to +2 index points. Trading conditions fell 4pts while the employment and profitability components fell 2pts. Business confidence fell 4pts to -6 index points.

“Business conditions continued to soften in Q3, in line with our assessment that activity remained subdued in the quarter,” said NAB Head of Australian Economics Gareth Spence. “Confidence also fell in the quarter and remains in negative territory.”

Leading indicators continued to soften with expected business conditions down at both a 3-month and 12-month horizon. Forward orders remained negative at -4 index points and capacity utilisation eased to 83.0%, while capex plans also fell.

“Forward looking indicators have continued to soften over recent quarters,” said Mr Spence. “Capacity utilisation has also continued to trend downwards, though it remains above average, reflecting the ongoing progress on bringing supply and demand back into better balance.”

“Measures of constraints on output have also adjusted over time but the share of firms reporting labour availability as a significant constraint remains around a third, well above pre-COVID levels,” said Mr Spence. “On the other hand, the share reporting demand as a significant constraint has continued to rise from low levels to be back around its pre-COVID level.”

Reported cost growth edged up with labour costs growing at 1.2% and purchase costs growing at 1.0%. Price growth measures were mixed, with overall final product price growth running at 0.4% q/q (down from 0.6%). Retail price growth was unchanged at 0.7% while recreation & personal services price growth was 0.4% (down from 0.6%).

“Labour cost growth remains elevated, and wage costs continue to be the top issue affecting business confidence in the survey,” said Mr Spence. “Purchase cost growth is also persisting, but the survey shows a marked drop in final product price growth in the quarter which suggests progress on inflation is continuing albeit somewhat at the expense of margins.”

For more information, please see the NAB Quarterly Business Survey (Q3 2024)