The Australian economy is in good shape leading into tonight’s 2023-24 federal budget, according to the latest survey of business conditions and confidence from the National Australia Bank.
“For now, the survey suggests that the economy remains resilient,” the NAB said in commentary with the survey released a day early on Monday ahead of the budget.
Business conditions eased 2 points to a +14 index points reading in April, “continuing a trend of gradual easing but remaining at above-average levels,” according to the survey. Business confidence rose 1p point to a break reading of zero points.
“Trading conditions were lower but at +20 index points remain at a very high level, and the employment index has stabilised well above its historical average,” the NAB said in commentary.
“Confidence, by contrast, is now mired below average (albeit it has also stabilised in recent months) suggesting firms expect the recent period of resilience to fade.”
The survey pointed to continuing cost pressures in business “Cost growth remained a challenge, with purchase cost growth picking back up after easing in recent months and labour cost growth still high.
“Nonetheless, price growth measures continued to gradually moderate with overall prices running at 1.1% in quarterly terms and retail prices at 1.4% (down from 1.7%).
The NAB said this could be a positive and “may signal further gradual easing in inflation in the early part of Q2 after the most recent CPI release showed some easing in Q1, albeit inflation remains very elevated.”
“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.”
NAB chief economist Alan Oster said in the survey commentary that “Across industries, conditions remain very strong across the board, particularly in transport & utilities and mining,” said Mr Oster.
“Construction remains the softest which reflects the ongoing challenge of elevated input prices putting pressure on profits for businesses in the building sector.”
Wholesale led the increase (up 11pts) in confidence, “alongside small improvements in finance, business & property, retail and construction, though manufacturing fell 9pts.”
Mr Oster said leading indicators softened, with forward orders down 2pts to +1 index points and capex also down 2pts to +6 index points. Capacity utilisation was steady at a relatively high 85.1%.
Price and cost growth were mixed. Labour cost growth was steady at 1.9% in quarterly equivalent terms, but purchase cost growth rose to 2.3% (from 1.9% in March). Still, overall price growth was 1.1% (down from 1.3%) and inflation in the retail sector was 1.4% (down from 1.7%).
“There was some further easing in price measures this month even though cost pressures remain very high,” said Mr Oster. “This may signal further gradual easing in inflation in the early part of Q2 after the most recent CPI release showed some easing in Q1, albeit inflation remains very elevated.”
“Overall, the survey shows the economy remains resilient,” said Mr Oster. “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.”
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There will be no joy for budget watchers from March’s building approvals, released yesterday.
They showed that the long slide in underlying approvals that began more than a year ago continues, though at a slower pace.
Monthly approvals peaked in March, 2021 (boosted by the HomeBuilder subsidies) at 23,313 and have fall near 50% to March’s 12, 686.
For the sixth month in a row there’s been an underlying easing in approvals even though the headline figures bounce around.
March saw a small 0.1% in approvals, seasonally adjusted, following a 3.9% rise in February, according to the Australian Bureau of Statistics (ABS) data.
Daniel Rossi, ABS head of construction statistics, said “The result was driven by a 2.8 per cent fall in approvals for private sector houses, following an 11.3 per cent February rise.
Private sector house approvals remain 15.0 per cent lower than March 2022. and down from the peak of 14,205 approval in March, 2021.
“Private sector dwellings excluding house approvals increased 5.6 per cent in March, following a 9.7 per cent decrease in February,” he said.
Seasonally adjusted total dwelling approvals fell a massive 42.1% in Tasmania, 19.1% in South Australia and 6.7% in Queensland.
But approvals saw a 27.2% jump in WA, a more modest 3.1% rise in NSW and a 1.7% rise in Victoria.
Approvals for private sector houses fell in most states: NSW (-4.0 per cent), Queensland (-3.9 per cent), Victoria (-3.8 per cent), and South Australia (-0.1 per cent). WA was the only state with a March increase (+8.7 per cent).
The value of total building approvals fell 5.9%, following a 19.5% rise in February. The value of total residential building approvals fell 6.5%, comprised of a 6.4 % drop in new residential building and a 7.4% slide in the value of alterations and additions.
