Confidence rebounds in June, says major bank survey
Despite warning signs of slowing growth, business conditions remained above average after experiencing a decline in the first half of the year, according to the latest NAB Monthly Business Survey for June.
The survey found that business conditions remained steady at +9 index points. Trading experienced a slight decline of 1 point, reaching +14 index points, while employment remained stable at +5 index points. Profitability showed a slight improvement, rising by 2 points to +9 index points.
“Business conditions have eased notably since January but remain above their long run average, a sign of ongoing resilience,” said NAB chief economist Alan Oster (pictured above). “We continue to see warning signs in the survey about the outlook for growth but as of June firms were yet to see a real deterioration.”
While retail conditions weakened, construction conditions saw an improvement, balancing the overall scenario.
“We have expected discretionary spending to slow and that is showing up with retail conditions falling in June,” Oster said. “However, there was an offsetting increase in construction conditions which may reflect a combination of improving supply issues as well as resilient underlying demand for housing.”
Business confidence increased by 3 points, reaching 0 index points. Leading indicators had a mixed performance, as forward orders by 2 points to -2 index points, while capacity utilisation decreased by 1 point from 84.5% to 83.5%.
“Confidence rebounded in a little in June but remains low at 0 index points, which implies that there are just as many firms that are pessimistic about the outlook as there are firms that are optimistic,” Oster said.
“In trend terms, confidence is weakest in retail and is also negative in wholesale and recreation and personal services, reflecting concerns about the outlook for consumption.
“Forward orders also remain in negative territory in a further sign that things may soften further over the period ahead. We also saw a fall in capacity utilisation in June, back to levels not seen since April last year, although at 83.5% this measure remains well above average.”
The survey also found ongoing concerns regarding cost pressures as labour costs surged.
“Labour cost growth jumped back up to 2.6% in quarterly terms in June, possibly reflecting firms factoring in minimum and award wage increases in advance of 1 July,” Oster said.
Input cost growth remained stable at 2.3%. Although product price growth moderated slightly, retail prices experienced an increase of 1.6% in quarterly terms.
“Purchase cost pressures also remain, and retail price growth picked up in the month, signalling that underlying inflation will likely remain elevated when Q2 CPI is released later in the month,” Oster said.
“Overall, the survey suggests the economy remained resilient and price pressures continued through the end of Q2, despite warning signs that growth is slowing.”
