Australian businesses are expecting a tougher few months, with forward orders falling to their weakest level since the pandemic as rising costs squeeze margins and higher interest rates weigh on the outlook, according to the latest NAB Monthly Business Survey.
Business confidence slipped 1 point to -15 in October, while business conditions fell 1 point to -2. Both remain well below their long-run averages of 4 and 7 respectively. Commenting on the results, Westpac economist Luka Belobrajdic said that confidence now sits in the bottom 5% of results in the survey’s history.
Trading conditions and profitability both weakened, and profitability is now 12 points below its long-run average. Retail was the weakest industry, with trend conditions at -18, while mining was the only sector where confidence remained positive.
The survey ran from 24 to 31 October. That was after a stronger-than-expected September quarter inflation result, and before the Reserve Bank’s 3 November rate rise.
The biggest shift came in forward orders, which fell 11 points to -12, led by sharp falls in construction and manufacturing.
Belobrajdic said the drop suggests “firms are bracing for weaker activity over coming months”. He also noted that businesses’ plans for capital expenditure fell 5 points to 2, below their long-run average.
Despite the fall in orders, construction still reports the highest capacity utilisation of any industry, which NAB attributed to demand for both residential and commercial building.
Purchase cost growth edged up to 2.4% on a quarterly basis, while growth in businesses’ own selling prices slowed to 0.6%. Belobrajdic said the gap suggests firms are absorbing a significant share of the increase in their costs, which is hurting profitability.
Labour cost growth eased to 1.5%, and the employment index rebounded 5 points to 4. However, NAB said weaker profits make a slowdown in hiring more likely.
The results leave the Reserve Bank facing conflicting pressures.
“For the RBA, the survey reflects the challenge at hand,” NAB economists said. “Cost pressure remains a serious risk to the inflation outlook, but growth is slowing and there are risks that labour demand may soften going forward.”
Mortgage holders have also felt the latest rate rise. ANZ-Roy Morgan found their confidence fell to its lowest level since its weekly series began in 2008 after the RBA lifted the cash rate to 4.85%, although ANZ believes rates have likely peaked.
Get the hottest and freshest property and mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
