The NAB report found that business conditions fell by 8pts in December — the third consecutive monthly decline and although there was a small improvement in the index from November, it was still not back to pre-pandemic levels.
Forward orders moderated further in the month and there are indications that they may ease further.
The report also revealed that there are still pressures on prices from inputs — including labour costs — and product prices.
However, all three measures continue to ease and, if that trend continues, NAB economists said it could indicate that Australia has already seen the peak in inflationary pressures in Q4.
Overall, the survey continued to point to a healthy level of activity with above-average conditions and elevated capacity utilisation but a slowing in momentum with most indicators pulling back over the past three months or so in line with our expectations for a slowing as the post-COVID-19 rebound fades and rate rises continue to flow through.
NAB chief economist Alan Oster said after holding up relatively well in recent months, business conditions eased significantly in December with the trading conditions, profitability, and employment indices all falling.
“The falls were significant and occurred in every sector. That said, conditions are still significantly above long run averages. As a result, the main message from the December monthly survey is that the growth momentum has slowed significantly in late 2022 while price and purchase cost pressures have probably peaked,” he said.
Confidence rose in all industries with the exception of transport & utilities. By state, there was an improvement in Western Australia, NSW, and Victoria while Queensland edged higher and Tasmania was flat.
“After turning negative last month, confidence remained well below average and just into negative territory despite a small improvement in the month,” said Mr Oster. “The gap between current business conditions and business confidence remains wider than usual though has narrowed. Ultimately while on average business reports still healthy activity at present, they don’t necessarily expect that to last.
“Forward orders have softened over recent months, likely reflecting a cooling in demand, while any backlogs are being worked through. Of note is that forward orders for retail and wholesale are now in negative territory suggesting the goods sector is beginning to cool after a very strong year.
“Momentum is clearly slowing though activity remains solid. Price pressures are still evident but are easing as supply chains, freight costs and fuel input prices ease.
“That said, we know the full impact of rates is yet to fully flow through so the survey should give us an indication of the accelerating impact from rates over coming months.”
