Business conditions steady in December 2024 quarter: NAB
Business conditions held steady in the final quarter of 2024, but easing price pressures and rekindling consumer demand point to a more optimistic outlook for the year ahead.
According to NAB’s quarterly business survey, business conditions remained steady at +3 index points in the December 2024 quarter.
After a challenging 2024, businesses are expecting a reprieve in 2025 as consumer spending recovers and inflation eases. Business conditions expected across the 12-month horizon rose by 5 points, NAB’s survey found.
“Expected business conditions in the next 12 months and capex plans in the next 12 months both improved – possibly boosted by the prospect of rate cuts, recovering consumer demand and easing costs growth over 2025,” NAB said.
Business confidence improved by 3 points but remained in negative territory at -4 index points, according to NAB.
“Wage costs remained the top issue affecting business confidence. Pressure on margins, demand and availability of labour remain near to the top of the list, though are converging with long-run averages,” NAB said.
Both labour and purchase cost growth eased in the fourth quarter of 2024. Labour cost growth fell to 0.9 per cent, down from 1.2 per cent, and purchase cost growth eased to 0.7 per cent, down from 1 per cent.
Despite this, labour remains a top issue for businesses, with 82 per cent of firms reporting labour availability as a constraint and 34 per cent as a “significant” constraint.
“This is good news for job seekers and suggests the RBA does not have to engage in either a rapid or large series of interest rate reductions,” Ivan Colhoun, CreditorWatch chief economist, said.
Inflation results were promising last quarter, tipping the odds in favour of an interest rate cut at the RBA’s February meeting. Overall final product price growth remained unchanged at 0.4 per cent, quarter on quarter, while retail prices grew 0.5 per cent quarter on quarter, down from 0.7 per cent.
“News on the inflation front was favourable with cost increases and expected retail price rises over the next three months back to levels broadly consistent with the RBA’s inflation target. That should allow the RBA to reduce interest rates by 25bps at its mid-February Board Meeting in just under two weeks’ time,” Colhoun said.
Industries that saw the sharpest drops in conditions included retail, finance and manufacturing, which respectively fell by 15, 13 and 12 points. This was balanced by small upticks in recreation and personal services, construction, wholesale and business service industries.
“Easing cost pressures and the stabilising of business conditions, if sustained, may be a sign that businesses are now passing the trough in sluggish growth,” NAB said.
“However, uncertainty around the extent of the consumer recovery and the timing of rate cuts may continue to weigh on both business conditions and confidence in 2025.”
