The National Australia Bank (ASX:NAB) says its monthly survey of business has picked up the first improvement in conditions in five months in July, while confidence eased from June’s uptick.
The NAB said the improvement in conditions stemmed from gains in employment, while confidence eased and remained low, despite a small increase in forward orders.
“Capacity utilisation continued its gradual decline but remains above average, despite a sharp fall this month. Final product price growth was unchanged but confirms the downward shift in June—the lowest reading since early 2021. Purchase cost growth eased again and is not far from its pre-COVID pace. The survey continues to show that supply and demand in the economy are moving back into balance, and that inflationary pressures continue to ease,” the NAB survey showed.
The June quarter Wage Price Index, also released yesterday, showed a misleading rise of 0.8% for the quarter and an unchanged 4.1% annual rate from March. The Australian Bureau of Statistics (ABS) said the index was skewed by a larger-than-normal rise for public sector employees due to new arrangements granting Commonwealth public servants a pay rise from the same date. However, the ABS noted that the 0.7% rise for public sector employees (who outnumber those in the public sector) was the lowest in more than two years (and down from the 0.9% rise in the March quarter).
“Business conditions improved for the first time in five months in July, but it was only a small rise, and they remain below average, while the trend measure fell again,” according to NAB Chief Economist Alan Oster.
“The fall in conditions is consistent with the slowdown in growth that has occurred, but we expect the economy to grow more quickly in the second half of the year,” he said on Tuesday with the survey’s release.
Business conditions rose 1 point (unrounded) to +6 index points and are now only slightly below their long-run average. The improvement was due to a lift in the employment index (up 7 points) with profitability unchanged and trading conditions falling 2 points.
Business confidence fell 2 points to +1 index point, with falls across all industries except construction and recreation and personal services. In trend terms, confidence remains weakest in the goods distribution sectors—retail and wholesale trade, both of which are negative in trend terms (at -9 and -7 points respectively).
“We were concerned about the sharp decline in the employment index last month, but it jumped back to an above-average level this month, suggesting the robust jobs growth in the economy is continuing for now,” said Mr Oster. “However, below-average trading conditions and profits remain a concern.”
Other activity indicators were mixed in July. Forward orders remained weak but showed some improvement, rising 2 points to -4 index points, while capex rose 7 points to +6 index points. In contrast, capacity utilisation had a notable fall to 82.7%, although it remains above its historical average.
“There was a sizeable decline in capacity utilisation in July, and while we would caution against putting too much emphasis on a single month’s result, particularly as it was driven by a few sectors, it is also falling on a trend basis. This provides further evidence that the rebalancing in supply and demand that the RBA is looking for is occurring.”
Labour cost growth bounced to 2.5% in quarterly equivalent terms (from 1.5% in June). In contrast, purchase cost growth eased to 1.1% (from 1.3%) while product price growth was unchanged at 0.7%. Of the consumer sectors, retail price growth fell to 0.9% (from 1.3%), while recreation and personal services prices growth rose to 1.6% (from 0.6%).
