Australian Businesses Conditions Stay Strong in April but Uncertainty Remains

Shoppers visit the David Jones Department store in Sydney, Australia, on Dec. 26, 2021. (Wendell Teodoro/Getty Images)

Australian business conditions still remain robust in April amid economic headwinds thanks to resilient customer demand and a strong labour market.

According to the latest monthly business survey by the National Australia Bank (NAB), the business conditions index, which measures trading conditions, profitability and employment, dropped two points to 14 index points in April.

While the drop continued a trend of gradual easing in business conditions, the index still stayed at above-average levels.

Across various industries, the level of conditions remained elevated, with significant increases in the transport and utilities (up 16 points) and the wholesale (up 14 points) sectors.

Tasmania, Western Australia and South Australia also saw strong growth in business conditions, while New South Wales, Queensland and Victoria recorded a fall.

NAB chief economist Alan Oster said the new survey indicated the ongoing resilience of the Australian economy amid high inflation and interest rate hikes.

“Demand is still very strong, as demonstrated by elevated trading conditions, and employment is also holding up, reflecting the strength of the labour market,” he said.

“We continue to expect consumption growth to slow as the effect of higher rates further impacts households, but how quickly and how sharply this occurs remains uncertain.”

Meanwhile, Australian businesses continued to experience inflated operating costs during the month, with labour and purchase costs rising by 1.9 percent and 2.3 percent, respectively.

Overall business prices also climbed, albeit at a lower rate of  1.1 percent, down from 1.3 percent in March.

Additionally, inflation in the retail sector stood at 1.4 percent, down from 1.7 percent.

“There was some further easing in price measures this month even though cost pressures remain very high,” Oster said.

An employee working at the Multi Slide Industries manufacturing plant in Adelaide, Australia, on Aug. 12, 2013. (Morne de Klerk/Getty Images)

The chief economist added that the slowdown in price growth might signal further softening in inflation in the early part of the second quarter of 2023.

ANZ Bank economists said the movement in business prices was consistent with other evidence that inflation was decreasing.

However, they believed the price growth was still too high for the Reserve Bank of Australia (RBA) to comfortably bring inflation down to the two to three percent target range.

“We think stickiness in services and non-tradable inflation will prompt the RBA to lift the cash rate a final 25 basis points to 4.1 percent in August,” they wrote in a report.

Slight Improvement in Business Confidence

During April, the NAB business confidence index increased by one point to zero index point due to a sharp rise in wholesale (up 11 points) and small improvements in finance, business & property, retail and construction.

While sectors such as retail, wholesale, finance, business and property, and recreation and personal services reported negative sentiment in current economic conditions, other industries remained positive.

“Confidence is still below average but has stabilised around zero index points over recent months,” Oster said.

“A zero reading for confidence in the survey indicates that an equal share of firms are optimistic as pessimistic, which highlights how the outlook is finely balanced.”

Despite the slight improvement in business confidence, consumer sentiment soured following the latest interest rate hike on May 2.

According to the latest ANZ-Roy Morgan report, the consumer confidence index slipped by 2.1 points to 77.7 points in the week ending May 7, which was well below the monthly average of 111.4 points.

The index measuring consumer confidence in their current financial conditions also fell four points to its second-lowest level on record since 2001, while confidence in current economic conditions dropped by 2.9 points.

ANZ senior economist Adelaide Timbrell believed the weak results were due to the RBA’s latest interest rate decision.

“RBA’s surprise interest rate increase likely pushed consumer confidence lower last week, to its eighth weakest result since March 2020,” he said.

“Confidence remained below 80 for a tenth straight week, the longest stretch below 80 since the 1990-91 recession.”