Business conditions ease amid slow growth

Weak consumer demand impacts profitability

Business conditions ease amid slow growth

News

By Mina Martin

Business conditions in Australia eased in the second quarter of 2024, as slow economic growth and weak consumer demand impacted trading conditions and profitability, according to fresh NAB insights.

“Business conditions fell 5pts to +5 index points. Trading conditions and profitability both fell 6pts while the employment index was 3pts lower,” said NAB chief economist Alan Oster (pictured above).

Business confidence remains low, and forward-looking indicators are soft, with a decline in forward orders and expectations for future business conditions.

Mixed signals on costs and prices

The NAB survey indicated a mixed picture on cost pressures and prices.

While materials cost growth shows improvement, labour cost growth remains elevated.

Labour availability was a significant constraint for 30% of firms and wage costs remain a top concern,” Oster said.

Price growth measures have eased, suggesting that the slowing demand environment is putting downward pressure on firms’ ability to pass on costs to consumers.

Sector and regional performance

Conditions varied significantly across industries and regions.

The construction sector saw a rise of 10pts, moving back into positive territory, while retail conditions remained deeply negative.

“By industry, there were 6-7pt falls in recreation and personal services, finance, property and business, transport and utilities, and retail,” Oster said.

Regionally, Tasmania and South Australia experienced large falls in conditions, while Victoria and South Australia were the softest overall.

Weak forward indicators persist

Forward indicators showed further softening, with expected business conditions falling at both 3-month and 12-month horizons.

Forward orders dropped to -6 index points, and capacity utilisation edged down to 83.6%.

“Expectations for future business conditions have weakened, which suggests businesses are becoming more worried about the outlook for the economy even as we have so far managed to avoid a recession,” Oster said.

To compare with previous NAB survey results, click here.

See LinkedIn post here.

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