Businesses prove resilient as conditions pick up

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Business conditions have started the year strong after easing for three months in a row in the final months of 2022.

The monthly business survey from NAB revealed a “very strong” +18 result, lifting five index points despite inflationary pressures and rising interest rates.

Trading conditions led the uptick, surging eight points. Profitability and employment conditions also improved but more moderately.

Upstream sectors such as wholesale, construction and manufacturing led the improvement in conditions, while consumer-facing sectors such as retail experienced more modest uplifts.

Leading indicators edged higher, with forward orders lifting three points and capacity utilisation lifting to 85.7 per cent – close to record highs seen in mid-2022.

NAB chief economist Alan Oster said the survey suggested the economy remained resilient despite headwinds.

“From here, the pace of ongoing supply chain healing and strength of wage growth will be important in shaping how much further cost pressures ease, while the resilience of consumption will continue to be tested as higher rates are passed through to households,” Mr Oster said.

The indicator also revealed a re-acceleration in the costs of labour, inputs and sale prices after declining steadily in the second half of 2022.

The report said it was too early to say if the trend was reversing, given the volatility of the series, but noted that labour costs were putting pressure on services prices.

Business confidence levels also lifted to +6 index points, returning to its long-run average range.

That’s despite the latest interest rate hike weighing heavily on consumers and pushing confidence towards levels last seen in the early days of the pandemic.

The monthly consumer sentiment survey from Westpac and Melbourne Institute revealed a 6.9 per cent fall in February after consumers reported feeling more optimistic in December and January.

The fall to 78.5 marks the second-lowest reading in the survey’s near 50-year history, with lower scores recorded in November 2022 and April 2020.

The monthly indicator also dropped off sharply after the central bank hiked interest rates by another 25 basis points last week, falling from 83.5 to 74.8.

Westpac senior economist Matthew Hassan said the strong December consumer price index and the continuation of the Reserve Bank of Australia’s tightening cycle had dashed hopes of easing cost of living pressures.

He said the February result was only slightly higher than at the start of the pandemic and below the low point of the global financial crisis.

“Prior to that, we need to go back to the deep recession in the early 1990s to find weaker index readings,” he said.

The weekly consumer confidence index assembled by ANZ and Roy Morgan also plummeted in the wake of the latest RBA rate hike, sinking 5.5 points to 78.1, its lowest level since early April 2020.

The sharp drop in consumer sentiment follows a 3.2 point dip the week before.


Poppy Johnston
(Australian Associated Press)


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