Wage costs, margin pressures ‘the top issues for business’, says NAB
Tight labour markets and pressure on margins are the biggest concerns for businesses at the moment, the latest NAB business data reveals.
The NAB Quarterly Business Survey indicates business conditions moderated considerably in the second quarter, with forward-looking indicators also softening.
Business conditions fell eight points to +9 points in the survey for the June quarter, which is still above the long-run average of +3. Trading conditions, profitability, and employment all declined.
Business confidence increased 1pt but remained negative at -3 index points. Expected business conditions fell to +14 index points at a 3-month horizon, down from over +20 index points in Q1, and forward orders turned negative at -1 index point.
NAB chief economist Alan Oster said while conditions are still a little above their historic averages, they have fallen a long way from highs seen in 2022.
“Forward looking indicators in the survey have also softened, indicating firms expect there is further slowing to come,” said Mr Oster.
“Business confidence has been negative for some time, but the more concrete forward orders measure is now also negative.”
Labour shortages, wage costs impacting business confidence
Finding suitable labour is still a major issue with businesses only seeing an incremental improvement so far.
“While the rebound in population growth has helped somewhat, the labour market clearly remains very tight for the time being,” said Mr Oster.
“Still, we expect this to gradually change as the economy slows more materially.”
Wage costs continue to be one of the top issues affecting business confidence based on the survey.
Expected annual wage growth per employee decreased to 1.7 per cent, from 1.9 per cent, but the share of firms expecting wage pressures to increase over the next six months continued to rise, from 74 per cent to 83 per cent.
“The response of wage growth to the very tight labour market remains a key question for the economy,” said Mr Oster.
“Firms are clearly concerned about the pressure for wage growth with this being the top issue affecting confidence. Pressure on margins is also a concern as the economy slows and the scope for firms to pass on costs to their customers becomes more limited.”
The growth of purchasing costs slowed in the second quarter down to 1.3 per cent from the previous 1.5 per cent.
“Firms’ expectations for the next three months point to further moderation, with this expectations measure declining from 1.2 per cent to 1 per cent,” the NAB business survey stated.
Supply chain issues easing
While the labour market remains very tight, businesses are continuing to see steady improvement in supply chain issues.
“Far fewer firms are reporting issues finding materials than was the case a year ago, and this is supporting some easing in cost pressures and inflation in some sectors,” said Mr Oster.
The share of firms reporting materials availability as a restraint declined to 26 per cent in the survey.
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