NAB's September 2024 Monthly Business Survey reports a rise in business confidence and conditions, reflecting resilience in the Australian economy despite slow growth and ongoing inflation pressures.
Both business confidence and conditions saw a positive uptick, according to NAB's Monthly Business Survey.
While business confidence remains in negative territory, registering below average, business conditions have improved, returning to levels around the long-run average.
The three key subcomponents of business conditions – trading, profitability, and employment – all rose, with the employment index climbing above average.
Despite the weakening trend in business conditions over the past two years and persistently weak forward orders throughout 2024, capacity utilisation continues to perform well above average, and capital expenditure (capex) remains healthy, signalling resilience in the economy despite sluggish growth.
Price pressures are also easing, with both overall price growth and retail sector price growth continuing to decline in the month.
However, input costs remain higher than output prices, leading to margin pressures on businesses.
NAB's Head of Australian Economics, Gareth Spence, commented on the latest figures, noting that both business conditions and confidence rose by 3 points in September.
Business confidence remains below average and in negative territory at -2 index points, while business conditions have returned to around average at +7 index points, with all three subcomponents rising in the month.
Spence also noted ome recovery in business confidence from last month’s drop, but highlighted that confidence remains weak, particularly in the goods distribution sectors such as retail and wholesale. However, improvements were noted in the retail and recreation & personal services sectors.
“The rebound in conditions in the month was driven by manufacturing, recreation & personal services, retail and wholesale,” said Spence. “Interestingly, as we think we are passing through the weakest point in economic growth for this cycle, business conditions have broadly tracked around average through mid-2024.”
Despite the improved conditions, forward orders remain weak at -5 index points, indicating potential ongoing pressure on activity. However, capacity utilisation remains strong at 83.1%, and capex continues to be healthy, registering 8 index points for the month.
Spence added, "While conditions have trended lower for around 24 months as growth has slowed, capacity utilisation remains well above its long-run average” said Spence. “This remains an important dynamic for the RBA where, despite slow growth, inflation remains too high suggesting that the balance of supply and demand in the economy is yet to fully normalise”.
Labour cost growth slowed to 1.7% in September, down slightly from 1.8% in August, while purchase cost growth eased to 1.2%, down from 1.6%.
“Input cost growth remains elevated, with both labour and purchase costs growth still high but both continue to trend lower. This is consistent with what we are seeing in the labour market, with wage growth looking to have passed its peak, and the moderation in import price growth”.
Overall, Spence is cautiously optimistic: “The business survey points to some encouraging signs as the RBA attempts to come in for a soft landing. While we would like to see the easing in price growth maintained over coming months, and for conditions to hold up even if just at around average levels, for now the trends remain encouraging”.