In the December quarter, businesses saw ongoing relief from cost pressures and output constraints as demand softened and supply chains improved, reflecting the impact of tighter monetary policy amid challenges from higher inflation and interest rates, NAB’s Quarterly Business Survey for Q4 2023 has revealed.
Business conditions declined by 4 points to +9 index points in Q4. Trading conditions fell by 6 points to +12, profitability declined by 5 points to +5, and employment eased by 1 point to +9.
“Consistent with our monthly business survey, [this latest] release shows business conditions eased further in Q4, continuing a trend of slowing activity that occurred across the course of 2023,” said Alan Oster (pictured above), NAB chief economist.
Across industries, a widespread decline in conditions was observed, particularly in transport & utilities and mining, both transitioning from very high levels in Q3. In terms of levels, wholesale and retail industries showed the lowest performance, both recording +5 index points.
Similarly, conditions saw a decline across most states, with Queensland experiencing the steepest drop (down 9 points), and Tasmania exhibiting the weakest performance at +6 index points.
Business confidence declined by 4 points (unrounded) to -6 index points. Confidence fell across most industries, particularly in retail, where it reached -20 index points, and with the exception of transport and utilities. Confidence also declined across all states except for Tasmania.
“Confidence ended the year in negative territory, reflecting the weak outlook for activity in the near term,” Oster said.
Expected business conditions dropped to +12 index points at a 3-month horizon, down from +17 index points in Q3. Forward orders turned negative at -3 index points, indicating consumer pressures from inflation and interest rates are weighing on demand. Capacity utilisation decreased but stayed high at 83.5%, and capital expenditure (capex) plans remained unchanged.
Continued gradual moderation was observed as purchase costs grew at 1.2% (down from 1.4% in Q3), and labour cost growth decreased to 1.2% (from 1.8% in Q3). Final product price growth was 0.7% q/q, with retail price growth easing to 0.9%.
The top concern affecting business confidence remains wage costs, cited by two-thirds of businesses, with expected wage growth per employee for the financial year holding steady at 2.2%.
Labour availability remains a significant output constraint for 35% of firms. While wage pressure remains a top concern, the impact of the minimum wage adjustment in Q3 waned.
“Cost pressures on businesses continued to ease in the quarter, and materials availability issues finished the year at fairly low levels,” Oster said. “However, labour availability remains a significant issue for a third of firms and wage pressures remain the top concern for businesses.”
With demand expected to remain subdued, businesses face the challenge of pressure on margins, which emerged as a top issue affecting business confidence.
“Notably, the slowdown in demand has meant firms appear to have had less scope to pass on costs to consumers,” Oster said. “Survey measures of price growth eased in Q4 – in line with the easing seen in the CPI – and pressure on margins is the second top issue for businesses. This will be a key challenge for businesses to navigate in 2024 as we expect demand to remain subdued, at least through the first half of the year.”
For a comprehensive overview, refer to the NAB Quarterly Business Survey report.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
