Ahead of Tuesday’s federal budget, the Australian economy eased in April, with business conditions and confidence back around long-term readings, but retail still remains very weak.
The monthly business survey from the National Australia Bank on Monday showed that while conditions eased back, business confidence had not moved from just under its long-term average, indicating a continuing wariness in the outlook for many businesses.
Business conditions fell 2 points to +7 index points and are now around the long-run average, while business confidence was unchanged at +1 index point.
"The decline in the employment index back to average levels is perhaps the most notable shift after a period of persistent outperformance in the labor market – though at +2 index points, this measure is not signaling outright declines in employment,” the NAB observed.
NAB Chief Economist Alan Oster said, “In some ways, this marks a bit of a milestone after a long period in which conditions have been gradually easing from the very high levels seen in 2022, reflecting slowing economic growth.”
“Perhaps the most notable shift in April was the fall back in the employment index to around its average at +2 index points,” said Mr. Oster. “The strength we have seen in the labor market has been very impressive, and strong labor demand has been a key driver of this.
"The April survey result suggests this may have now normalized somewhat, at least in the business sector,” he added.
Forward orders also fell in the month, driven by large movements in mining, manufacturing, and construction, while the level of forward orders also remains negative in retail and wholesale.
"That said, capacity utilization was unchanged and still above average, and capex remains elevated.
"There was some moderation across both labor and input purchases, and retail price growth slowed to 0.9% in quarterly equivalent terms, stepping down from the strong price growth seen in Q1 in both the survey and official inflation data.”
Overall, these signs of slowing activity and easing costs support the outlook for gradual improvement in inflation from here, but how quickly this occurs remains to be seen.
“At an industry level, we continue to see a trend of stronger conditions in services sectors such as finance, business & property, transport, and recreation & personal services,” said Mr. Oster. “Retail conditions remain the most concerning, in line with the subdued outcomes we have seen in official retail sales data,” Mr. Oster said in his analysis.
The monthly report was released a day early this month so as not to clash with Tuesday’s federal budget.
