Businesses show resilience despite slowing economy: NAB
Trading conditions and profitability improved in August but confidence remains mixed across different industries, according to the latest NAB business survey.
Business conditions rose 3 points to +13 index points in August off the back of stronger trading conditions, profitability and employment across most industries.
Profitability increased 2 points to +13 index points, and employment was up 3 points to +9 index points. Conditions overall remain well above long-run average levels.
Confidence and forward order measures also both edged higher but are still weighed down by the retail sector.
Confidence was mixed across industries and fell sharply in mining with a decline of 35 points. In trend terms, confidence remained weakest in retail at -14 points, with mining and finance, and business and property also in negative territory, the survey said.
Across the states, Tasmania remained weakest with Queensland and Victoria also negative.
Price and cost growth was mixed with labour cost growth falling to 3.2 per cent in quarterly equivalent terms, partially reversing the increase in July.
“Purchase cost growth was broadly steady at 2.9 per cent, with construction and wholesale seeing large increases. There was a slight fall in output price growth, to 1.7 per cent, driven by a softening in retail and recreation & personal services price growth (both 1.9 per cent in quarterly terms),” said NAB.
Negative confidence and forward orders in the retail sector
The bank noted that there is a growing divergence between current business conditions and forward-looking indicators within the retail sector.
“Conditions remain above average at +11 index points (in three-month-average terms) while both forward orders and confidence are deeply negative,” the survey said.
Business conditions remain at elevated levels in food, car retail, and the ‘other’ retail categories, but are much lower for personal and household goods retail.
“This dynamic has been mirrored in official data on retail sales, which has shown falling real consumption of clothing and household goods,” the survey said.
In terms of forward orders, the negative overall result is being driven by car retail as well as personal and household goods, with the food and ‘other’ subsectors showing forward orders closer to neutral,” the bank said.
“The forward orders measure reflects the net balance of responses on changes in “forward orders from customers”. Given that supply chains for cars and other large consumer durable goods were significantly disrupted during the pandemic, the negative readings for these measures may reflect declining backlogs of customer orders as supply has improved.”
NAB said this aligns with ABS data on non-commercial vehicle import volumes, which have been elevated in recent quarters as supply issues have been resolved.
“Overall, forward orders in the survey remain below average, with retail only around 10 per cent of the sample. Nonetheless, the subsector results help explain some of the gap between current and forward-looking measures,” it said.
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