The Australian economy strengthened in March with business conditions and confidence again rising, even as cost pressures became far more real for more and more companies.
The National Australia Bank’s March business survey showed that businesses saw a marked improvement in trading conditions and profitability last month thanks to continuing strong demand and rising employment levels (as the ABS Labour Force reports have confirmed).
“The continued escalation in price growth over recent months suggests a strong Q1 CPI reading is likely when released later in the month and based on the monthly trend could well continue to build in Q2,” the NAB forecast in yesterday’s commentary.
The NAB said the improvement was largely driven by the retail sector, which saw conditions rise 23 points, but other sectors chipped in such as recreation & personal services, finance, business & property.
Confidence jumped in the transport, construction, and recreation & personal services sectors, the NAB said.
But while activity was strong and rising in many areas, so were costs which the NAB said “escalated further in the month, with labour cost growth hitting 2.7% in quarterly terms and purchase cost growth up to 4.2% – both tracking at considerably higher rates than at any other point in the history of the survey.”
However, the NAB said businesses “seem to have been able to pass on at least some cost pressure with prices also rising at their fastest rate in the history of the survey at 2.3.”
That’s a positive for business, but not for consumers who are facing higher and higher costs.
Overall, both conditions and confidence are now back around the levels last seen in the pre-Delta rebound, despite activity having more than recovered its pre-Covid level.
For the month the NAB said business conditions rose 9 points (pts) in March to +18 index points, the largest one-month jump since June 2020. Trading conditions and profitability strengthened sharply, with trading conditions up 13pts to +24 index points and profitability up 8pts to +13 index points while employment also improved.
Business confidence rose 3pts in March to +16 index points, continuing the steady rise since the Omicron outbreak in December. Forward orders continued to strengthen, up 3pts to +12 index points, while capacity utilisation also edged higher to 83.1%.
Among the states, WA saw a significant boost to conditions as the border fully reopened and “conditions and confidence are now fairly strong across all jurisdictions.”
“A surge in business conditions headlined a really strong March survey,” said NAB Group Chief Economist Alan Oster. “Businesses reported very strong trading conditions and a sharp rise in profitability, which indicates demand is continuing to hold up as the economy rebounds from Omicron and growth gathers momentum.”
“Costs are growing at record rates in the history of the survey,” said Mr Oster.
“Purchase costs reached records with elevated oil prices adding to existing supply chain issues, and labour costs are also rising as businesses hire more workers in a very competitive labour market. These cost pressures are very broad-based across industries.”
“Importantly, it appears businesses have had little trouble passing on higher costs to consumers with prices – including retail prices – also rising at record rates,” said Mr Oster.
“Survey price measures differ from official measures in important ways, but we nonetheless expect very strong inflation in Q1 and likely Q2,” said Mr Oster.
“Overall, the results depict a very strong rebound, led by strong consumer demand,” Mr Oster added.
