However, 90 per cent of businesses said the lack of availability of labour was constraining output.
Around half of firms continued to also report availability of materials as a constraint. These supply-side constraints continued to be reflected in labour and purchase costs growth, which were both running at 2.1 per cent in the quarter.
Underlying wage indicators also edged higher with the forward-looking measure of expected annual wage growth per employee up to 2.1 per cent in Q3 (from 2.0 per cent in Q2).
Wage costs remain the top issue affecting business confidence. Firms also continue to pass on these cost increases, with overall product prices growing 1.4 per cent and retail prices growing 1.5 per cent in the quarter.
NAB chief economist Alan Oster said business conditions were broadly steady in Q3, at a strong +22 index points.
“Trading conditions and employment edged higher while profitability edged lower but all remain at high levels. By industry, conditions eased in manufacturing and retail but edged higher elsewhere, with conditions at fairly high levels across industries and states,” he said.
“As we have seen in the monthly business survey, conditions have really remained very strong through Q3 as demand has remained very elevated.
“Despite headwinds from inflation and rising interest rates, so far consumers seem to be maintaining their appetite for spending.
“Business confidence also strengthened in Q3 and is back above average after a soft Q2 that was impacted by uncertainty around the initial rates lift-off.”
Expected business conditions in three months sat at +29 index points and longer-run expectations at +27 index points. Forward orders softened but remained robust at +14 index points, while capacity utilisation reached a survey-record 86.3 per cent.
“Leading indicators remain very strong,” said Mr Oster. “Capacity utilisation is at a record level and capex plans are also very strong at +32 index points, suggesting firms are looking to expand their capacity to meet demand and help deal with the constraints they are facing.
“Constraints appear to be increasingly binding as capacity utilisation reached a new high in Q3, with a record reading of 90 per cent of firms reporting availability of labour as a constraint on output.”
Purchase cost growth edged higher, to 2.1 per cent, and the share of firms reporting materials availability as a constraint remains around 50 per cent. Labour cost growth also accelerated to 2.1 per cent, likely reflecting minimum wage impacts as well as broader wage growth and new hiring.
“The very supply-constrained environment has seen firms continue to face upward pressure on costs,” said Mr Oster. “Importantly, firms continue to pass through higher costs to consumers with the survey’s inflation indicators rising again, reinforcing our expectation of another very strong CPI print of around 1.6 per cent trimmed-mean for Q3.
“Wage costs and availability of labour continue to be the top issues affecting business confidence, reflecting the very tight labour market environment that businesses are facing.
“Expected annual wage growth per employee also continues to rise, from 2.0 per cent in Q2 to 2.1 per cent in Q3, and we continue to expect wage growth to strengthen over the coming year.”
