Business confidence at zero as discretionary spending slows
Business conditions remain above their long run average but there are warning signs for growth, NAB warns.
Businesses showed signs of resilience in June with conditions remaining steady at above-average levels, according to the NAB Monthly Business Survey.
Business conditions remained the same at +9 index points in June. Trading eased 1pt to +14 index points, employment was steady at +5 index points and profitability rose slightly, up 2pts to +9 index points.
The major bank warned there are warning signs of slowing growth, however, with confidence at zero and forward orders still in negative territory.
Cost pressures also continue to be an issue with labour cost growth jumping up to 2.6 per cent in quarterly terms.
This may reflect firms factoring in the minimum and award wage increases in advance of 1 July, NAB said.
Capacity utilisation also eased noticeably in June, to 83.5 per cent – its lowest level since April 2022.
“Business conditions have eased notably since January but remain above their long run average, a sign of ongoing resilience,” said NAB chief economist Alan Oster.
“We continue to see warning signs in the survey about the outlook for growth but as of June firms were yet to see a real deterioration.”
While confidence rebounded a little in June it remains low at zero index points.
“This implies that there are just as many firms that are pessimistic about the outlook as there are firms that are optimistic,” said Mr Oster.
“In trend terms, confidence is weakest in retail and is also negative in wholesale and recreation & personal services, reflecting concerns about the outlook for consumption.”
Retail conditions fell in June which was offset by an increase in construction conditions, reflecting a combination of improving supply issues as well as resilient underlying demand for housing.
ABS data reveals fall in discretionary spending
ABS data released yesterday indicated that household spending on discretionary goods and services for the month of May this year was 0.6 per cent lower compared to May last year.
The fall in discretionary spending was primarily driven by falls in goods for recreation and culture, furniture, floor coverings and household goods and clothing and footwear.
Overall household spending rose 3.3 per cent in May compared to the same time last year, but it was the lowest growth rate since July 2021.
“This comes as households respond to cost-of-living pressures,” the ABS said in a release issued yesterday.
The overall increase in household spending was driven by hotels, cafes and restaurants with spending up 7.2 per cent and transport which saw a 7.7 per cent increase in spending.
Goods spending saw a 0.9 per cent fall, the largest decline since July 2021, the ABS said.
Spending on food was the only positive contributor, rising 5.8 per cent, with the May Monthly Consumer Price Index Indicator showing a 7.9 per cent rise in food prices.
Underlying inflation expected to be at elevated levels in June quarter
Mr Oster said while overall product price growth moderated slightly in the June Business survey, retail price growth bounced in the month, jumping 1.6 per cent in quarterly terms.
“In trend terms, retail prices continue to gradually moderate but remains elevated at 1.6 per cent, while price growth in recreation and personal services also continues to track at an elevated 1.3 per cent,” he stated.
“[This suggests] that underlying inflation will likely remain elevated when Q2 CPI is released later in the month.”
Overall, the NAB business survey suggests that the economy remains resilient and that price pressures continued through to the end of the June quarter, despite signs that growth is slowing, said Mr Oster.
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