Rising inflation, interest rates and gloom about a possible recession saw business confidence again fall in June while business conditions eased as well, according to the National Australia Bank’s latest monthly business survey.
Business confidence fell five points to a below-average +1 index point in June, the NAB reported while business conditions eased by 2pts to +13 index points, remaining well above average.
The worries about inflation were easy to understand from some of the data picked up in the NAB’s survey for June.
The bank revealed that some of its measures (some were the highest rises on record) suggests the June quarter Consumer Price Index will be “a very high print” when released at the end of this month.
“Product (output) price growth also strengthened and retail price inflation remained elevated at 2.9%. Bringing together retail and services industry price data from the survey suggests a very high print for underlying inflation when the Q2 CPI is released later in July,” the NAB said in commentary on the survey.
Cost price growth hit new survey records in June – eclipsing the previous peaks seen earlier in the year – with labour cost growth at 3.6% in quarterly terms and purchase cost growth at 4.8%. Product (output) price growth also strengthened with retail sector inflation remaining elevated at 2.9%.
“Businesses continue to face escalating cost pressures,” NAB Group Chief Economist Alan Oster said in commentary with the survey release.
“Both purchase costs and labour costs are running at record levels in the history of the survey, which reflect the significant global supply shocks that are still flowing through as well as domestic energy disruptions and the very tight local labour market.”
“Higher costs are clearly translating into higher inflation,” said Mr Oster. “Price measures in the June survey confirm we are heading for another very strong inflation print for Q2 when CPI is released later this month – possibly as high as 1.5-1.6% in underlying terms, which would be the fastest underlying inflation on record.”
“Overall, the survey suggests firms are increasingly wary of how the economy will hold up over the months ahead, despite continuing to experience fairly strong conditions at present,” said Mr Oster.
“Still, reasons for optimism remain – including elevated household savings and a strong labour market – which will weigh against concerns about the impact of inflation and interest rate rises on consumers.
“As such, the extent to which businesses’ fears are justified remains to be seen,” he added.
But for the moment overall conditions remained strong across the states and across most industries – including retail, the NAB pointed out.
“Soft conditions in construction remain an outlier as building costs continue to rise, squeezing profits despite a large ongoing pipeline of work in the sector.
“While confidence eased, forward orders remain elevated, as does capacity utilisation, suggesting that conditions will likely remain healthy in the near-term.
“The supply side remains a challenge, with survey measures of both input and labour costs growth reaching new records in June at 3.6% and 4.8% respectively in quarterly terms.
The NAB said All three components of conditions eased, with trading conditions down 3pts, profitability down 4pts and employment down 2pts.
“Confidence sank below average in June as inflation and interest rate hikes clouded the outlook,” according to Mr Alan Oster.
“Confidence in the retail sector took a significant hit, falling more than 20pts to be well into negative territory, reflecting concerns about the outlook for household spending.”
“While confidence fell, business conditions held up in June,” said Mr Oster. “Conditions remain strong across the states and in most industries. Construction continues to be the only real outlier with building costs weighing, despite a healthy pipeline of work in the sector.”
Forward indicators remained healthy with capacity utilisation at 84.8% (down slightly from 84.9% in May) and forward orders down 2pts to +10 index points.
“Forward indicators softened slightly in June but still suggest a fairly positive outlook for the coming months,” said Mr Oster.
“Capacity utilisation remains around the record high levels seen just before the Delta outbreak in 2021, which should support investment and hiring over coming months.”
