Price growth edges lower despite reasonable economy

NAB Quarterly Business Survey Q1 2024

After signs of easing cost and price pressures through late 2023 as the economy slowed, the business survey suggests progress was more incremental through Q1. Business conditions appear to have stabilised at above-average levels and confidence also picked up (albeit still at negative levels), alongside improved but still weak forward orders. Capacity utilisation levels remain high. Materials availability issues appear to have abated but labour availability remained a significant issue for a third of firms and wage costs continue to be the top concern, alongside pressure on margins. With activity proving resilient, there was little improvement in cost growth measures in the quarter with both labour costs and materials cost growth still running at elevated levels – but forward-looking cost growth measures suggest firms expect some further moderation. Importantly, price growth measures are now tracking around a rate that, if maintained, would be consistent with inflation easing towards the top of the RBA’s target range.

Survey Details

• Business conditions were steady at +10 index points.Trading conditions were unchanged, profitability ticked up while the employment index eased.
• By industry, there were notable falls in retail (down 8pts to -4 index points) and construction (down 12pts to -1) as well as mining and manufacturing, offset by a 4pt rise in recreation & personal services – with conditions still at a high level across services sectors in the quarter.
• By state, conditions eased slightly in NSW, WA and Vic but rebounded in Tas. Overall conditions remain atreasonably positive levels across the board.
• Business confidence rose 4pts to -2 index points, with confidence rising most in mining, manufacturing, wholesale, and finance, business & property. A smaller rise in retail left confidence in the sector still very low at -18 index points. Confidence remained negative across the states.
• Leading indicators were mixed in the quarter. Expected business conditions fell to +12 index points at a 3-month horizon, down from +14 in Q4, but strengthened slightly over 12 months. Forward orders rose to -1 index point, capacity utilisation ticked up to 83.8%, while capex plans remained steady.
• Labour indicators eased. Expectations for employment in the next 3 months fell 3pts to +10index points while 12-month expectations eased 5pts to +19 index points. Some 78% of firms reported availability of labour as a constraint on output.
• Reported cost growth eased only slightly from their Q4 rates, with labour costs growing at 1.2% and purchase costs growing at 1.1%.

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Authors
Brody Viney
Gareth Spence
Alan Oster

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All prices and analysis at 18 April 2024.  This information has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB").

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