Businesses trundling along, despite consumer caution

Australian businesses are still shaking off higher interest rates and price pressures.

Conditions for running a business have been trending well above average, despite a slowing economy, according to NAB’s monthly surveys.

The August report showed business conditions picking up two points to 13 index points thanks to improvements in all three components – trading conditions, profitability and employment.

The index also revealed an improvement in indicators that point to future performance, such as forward orders.

Customers appeared to be placing more orders in August after the indicator slumped for a few months.

The report suggested forward orders may have been influenced by normalising supply chains for cars and other big-ticket items, with backlogs now starting to clear up.

In August, forward orders were still below normal levels, but lifted by one point to a neutral reading.

Business confidence, another forward-looking measure, also improved two index points, although some industries were feeling more optimistic than others.

NAB chief economist Alan Oster commented on a notable improvement in the employment index, suggesting labour demand was strong.

But the cost of labour eased in August, which Mr Oster said may have been influenced by the spike seen in July as minimum and award wage rises drove a reset in wages.

“On the other hand, purchase cost growth remains elevated despite the improvement in supply chains, possibly reflecting energy cost pressures,” he said.

The bank’s economists expect inflation to stay elevated throughout the September quarter.

The business community may be feeling reasonably upbeat, but consumers remain troubled.

The Reserve Bank’s decision to keep interest rates on hold for three months in a row has not been enough to coax consumers out of their cautious state, according to the monthly index assembled by Westpac and the Melbourne Institute.

The consumer sentiment index for September sank a little to 79.5 index points, marking the longest stint below the 100 neutral mark since the recession of the early 1990s.

The latest survey period included the RBA’s September call – another month steady at 4.1 per cent – and signs of resilience in the national accounts.

Westpac chief economist Bill Evans said the survey painted a picture of intense pressure on family finances.

“Those concerns would have been exacerbated by the 15 per cent lift in petrol prices over the last two months, coming on top of already strong rises in rent and electricity,” he said.

Mr Evans said the threat of higher interest rates was starting to wane, but confidence was only likely to recover meaningfully when households became comfortable with the cost of living.

A consumer confidence weekly index collated by ANZ and Roy Morgan also came in lower, despite the September cash rate call and a resilient growth report.

The weekly index came in at 77.6 points, still well below the 111.1 monthly average since 1990.


Poppy Johnston
(Australian Associated Press)


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