Business conditions soften despite easing supply chain pressures: NAB
Higher interest rates and inflation began to weigh on activity in the last quarter, the NAB Quarterly Business Survey reveals.
Business conditions declined 4 points to +9 index points in the fourth quarter with the economy showing increased signs of the impact of tighter monetary policy settings, according to the latest NAB Quarterly Business Survey.
Trading conditions also fell 6 points to +12 index points and profitability declined 5 points to +5. Employment eased 1 point to +9.
NAB chief economist Alan Oster said the survey results indicated that business conditions eased further in the fourth quarter, continuing a trend of slowing activity that occurred across the course of 2023.
“Confidence ended the year in negative territory, reflecting the weak outlook for activity in the near term,” said Mr Oster.
Mr Oster said that forward indicators in the survey also continued to soften with forward orders turning negative in the quarter.
“This reflects that the pressures on consumers from inflation and interest rates are weighing on demand,” he said.
Improving supply chains did see an improvement in business cost pressures and output constraints.
Purchase costs grew at 1.2 per cent, down from 1.4 per cent in Q3. Final product price growth was 0.7 per cent quarter on quarter, down from 0.9 per cent in Q3, with retail price growth easing to 0.9 per cent.
Cost pressures on businesses continued to ease in the quarter, and materials availability issues finished the year at fairly low levels,” said Mr Oster.
The share of firms reporting materials availability as a significant constraint fell below 5 per cent and purchase cost growth eased further.
Labour cost growth also eased as the impact of the minimum wage adjustment in Q3 waned, though wage pressure remains the most common issue affecting business confidence.
“Labour availability remains a significant issue for a third of firms and wage pressures remain the top concern for businesses,” said Mr Oster.
Mr Oster said the slowdown in demand has meant that firms have had less scope to pass on costs to consumers.
“Survey measures of price growth eased in Q4 – in line with the easing seen in the CPI – and pressure on margins is the second top issue for businesses,” he said.
“This will be a key challenge for businesses to navigate in 2024 as we expect demand to remain subdued, at least through the first half of the year.”
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