But business confidence rises sharply
Business conditions in Australia fell by two points to +4 index points, now clearly below the long-run average, according to the latest survey from NAB.
The decline was driven by drops in employment (down six points to zero index points) and profitability (down one point to +2 index points). Trading conditions remained stable at +10 index points.
“Business conditions continued their now long running easing trend in June,” said Gareth Spence, NAB head of Australian economics. “They are now below average, reflecting the slowing in the economy through late 2023 and early 2024.
“Of note is the sharp decline in the employment index in the month. While it’s only one month’s read, the employment index is now below its long-run average and may be signalling that the broader slowing in the economy is flowing through more strongly to labour demand.”
The latest NAB Monthly Business Survey also showed that despite the drop in business conditions, business confidence rose six points to +4 index points, driven by increases in seven out of eight industries. The rise was led by manufacturing and wholesale sectors, while other industries, except for construction, saw increases of six points or more. Construction declined by 3 points.
In trend terms, wholesale and retail sectors remain the weakest, the only two industries in negative territory at -7 index points.
“Business confidence rose relatively sharply in the month and is now back into positive territory and at its highest level since early 2023,” Spence said.
Other activity indicators presented a mixed picture. Forward orders remained flat at -6 index points, while capital expenditure fell by five points to zero index points. Capacity utilisation edged up and remains well above average at 83.5%.
“Forward orders remain well into negative territory and have been there for some time,” Spence said. “The key driver of weak forward orders over recent months have been the retail and wholesale sectors, though manufacturing weakened further in the month and is also now very weak.”
Labour cost growth eased to 1.8% in quarterly terms, down from 2.3% in May. Purchase cost growth also fell to 1.3% from 1.7%, while overall product price growth decreased to 0.7%, down from 1.1%. Retail price growth remained stable at 1.5%, while prices in recreation and personal services fell to 0.7% from 1.1%.
“Encouragingly, the key price and cost growth measures reversed their increase from last month,” Spence said. “Retail price growth was broadly stable and is high despite the weaker activity outlook and confidence in the industry. However, also important for consumer prices on the services side, recreation and personal services price growth fell back to 0.7% on a quarterly basis.
“Overall, our take on the survey is that it continues to signal another soft quarter in Q2. But also that capacity utilisation is still high with demand and supply yet to fully normalise. Price pressures continue to ease in a trend sense though the data certainly remains bumpy.”
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