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Business conditions begin to cool as the flow of new purchases dries up.
The NAB Monthly Business Survey for April 2023, conducted from 21–28 April, ahead of the Reserve Bank of Australia’s (RBA) 11th rate hike in May, revealed that business conditions are beginning to ease but remained elevated, reflecting the resilience of demand and a strong labour market.
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According to the report, trading conditions were lower but at +20 index points, remaining at a high level, while the employment index has stabilised well above its historical average.
Meanwhile, confidence is below average but has stabilised in recent months, indicating that firms expect the recent period of resilience to fade.
Cost growth remained a challenge, with purchase cost growth picking back up after easing in recent months, lifting to 2.3 per cent, from 1.9 per cent in March.
Labour cost growth was also high at 1.9 per cent, however, overall price growth measures continued to gradually moderate with overall prices running at 1.1 per cent in quarterly terms and retail prices at 1.4 per cent (down from 1.7 per cent).
NAB chief economist Alan Oster said the easing of cost growth could signal further easing in inflation.
While conditions remained strong across the board, construction continued to lag at +6 index points as profitability continues to weigh.
“Overall, the survey shows the economy remains resilient,” Mr Oster said.
“We continue to expect consumption growth to slow as the effect of higher rates further impacts households, but how quickly and how sharply this occurs remains uncertain.”
Reflecting on the figures, ANZ’s economists expect, given the elevated costs suggest, the stickiness in services and non-tradables inflation will prompt the RBA to lift the cash rate a final 25 bps to 4.1 per cent in August.
Westpac economist Andrew Hanlan said the latest business data reflected the “slowing of activity across the Australian economy” as the intense headwinds of high inflation and sharply higher interest rates impact.
He added the flow of forward orders had dried up as the economy slowed and lacked momentum.
“That is in stark contrast to the sustained strength in new orders through October 2021 to October 2022 during the reopening phase,” Mr Hanlan said.
For example, the data showed forward orders weakened from +3 to +1, the softest reading since September 2021 (during the delta lockdowns).
Meanwhile, Australian building approvals were flat in March down 0.1 per cent month on month and remain close to decade lows, according to the data released by the Australian Bureau of Statistics (ABS).
This was driven by a 2.8 per cent decline in approvals for private sector houses (falling to 8,312 approvals) after an 11.3 per cent increase in February, according to ABS head of construction statistics Daniel Rossi.
“Private sector house approvals remain 15.0 per cent lower than March 2022,” Mr Rossi said.
[Related: Business confidence increases as price pressures ease]
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