After a fall in January, the conditions index rebounded to be above its long-run average. The rebound came on the back of a strong rise in the employment index – reflecting fewer health-related employment disruptions and strong labour demand – as well as improvements in trading and profitability.
Almost all mainland states and industries shared in the upswing, but Western Australia saw conditions fall as the planned border reopening was postponed. There was also a broad-based improvement in confidence, again with the exception of Western Australia and Tasmania, and forward indicators rose.
Businesses continued to report elevated costs growth, although purchase cost growth eased slightly from the record levels reached in January.
Final product price inflation also remained elevated with retail prices strengthening to over 2 per cent in quarterly terms, suggesting that cost pressures are increasingly being passed on to consumers.
However, prices continued to be driven more by temporary purchase cost factors rather than more sustained wage and labour cost pressures. How these forces evolve over the coming months remains a key uncertainty, with wages growth likely to strengthen as purchase costs ease.
“After Omicron caused significant disruption to businesses in January, the latest survey results show things were getting back on track,” said NAB group chief economist Alan Oster.
“The employment index has improved considerably as the labour market strengthens, after the virus caused many to be unable to work due to illness or isolation requirements at the peak of the recent wave.
“Business conditions rebounded strongly in Victoria and NSW, although WA and Tasmania saw conditions slip.”
In terms of industries, conditions improved across the board with big gains in retail and transport and utilities. Recreation and personal services also improved, though it continues to trail the pack.
“Confidence continued to improve in February as the threat to the economy from the Omicron outbreak receded,” said Mr Oster.
“That said, the survey for the month was largely completed before the invasion of Ukraine, so we will have to wait to see how big the impact of the conflict will be on confidence.”
Forward orders improved four points to +9 index points, and capex also strengthened five points to +8 index points. Capacity utilisation edged higher, from 81.7 per cent to 82.5 per cent, largely driven by retail.
“Purchase costs growth eased a little in February but remains at historically high levels, reflecting ongoing supply chain challenges – and these issues may be further compounded by events in Ukraine and sanctions against Russia,” Mr Oster said.
“Retail price growth strengthened in February, now above 2 per cent in quarterly terms, suggesting that businesses are passing higher costs through to consumers.
“While survey price measures differ from official measures in important ways, the results suggest another quarter of strong inflation is likely when March quarter CPI is released next month.
“Overall, the February survey shows that the economy is quickly getting back on track as the Omicron wave recedes. The outlook is fairly strong with supply disruptions and cost pressures now the major challenge facing businesses.”
