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Cost Easing the Key Data from NAB Survey

PUBLISHED

2023-04-11

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The National Australia Bank’s March business conditions and confidence survey could be enough to encourage the Reserve Bank’s to leave its hands off its interest rate lever despite the survey showing “resilience’ across much of the economy last month.

The NAB said even after a small dip last month, business conditions remain “elevated” and continue “to show ongoing resilience” while business confidence strengthened slightly and appears to have “stabilised”.

At the same time the NAB said the survey showed stronger signs that inflation had peaked in the final months of 2022 and that both wage and purchase costs eased last month after being higher over January and February. That’s the part of the survey the RBA will be very interested in.

The NAB said business conditions eased 2pts (unrounded) to +16 index points in March, "remaining well above the long-run average.”

"Employment eased 2pts to +10 index points and profitability was down 1pt to +13 index points, while trading conditions were broadly flat (unrounded) - but remain very elevated +26 index points.”

Business confidence rose 3pts to -1 index point and the NAB said there was a broad-based lift in confidence, led by manufacturing (up 8pts), while mining and construction edged lower.

"In trend terms, confidence was still negative in retail, wholesale, and finance, business & property but confidence was positive in all other industries. Across the states, only Qld was below zero in trend terms,” the NAB pointed out.

Chief economist Alan Oster pointed out that "business conditions have been slowly edging lower over the past few months but remaining well above their long-run average.”

“Trading conditions are particularly elevated, indicating that businesses continue to experience strong demand, and conditions are generally strong across states and sectors.”

“Confidence appears to have stabilised, but it remains below average at -1 index point.” said Mr Oster. “Confidence was particularly poor in retail and wholesale, likely reflecting that firms are concerned about how much longer consumer spending will hold up.”

Leading indicators were little changed. Forward orders edged higher, up 1pt to +4 index points, as much of the February fall in wholesale was reversed. Capacity utilisation was 0.1% lower but remains well above average at 85.1%.

"These results support expectations that inflation likely peaked in Q4, with the full Q1 CPI set to show some improvement when the data is released later in April.”

"Still, the rate of price growth and underlying pressures remains well above ‘normal’ levels, and any moderation in inflation is likely to be gradual with much further to go to bring inflation down to the RBA’s target band, NAB’s Mr Oster pointed out.

But for the confidence Mr Oster indicated there was still a long way to go to stabilise the economy.

"Overall, the survey suggests the economy is still holding up and indicates there has been some easing in inflation, although there is still a long way to go to bring inflation back down to the RBA’s target band and growth could be more volatile from there.”

"There are some encouraging signs that some of the upstream cost pressures that have driven inflation to date are now easing considerably, particularly around non-labour inputs,” said Mr Oster.

“Labour cost growth has also eased from its July peak, but with a very tight labour market the outlook wage pressure could remain a factor,” the NAB cautioned.

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