Monthly NAB survey shows Australian business sentiment largely declined in November, after a short-lived October spike.
According to a national survey, Australian business conditions ticked down to 2 (which is slightly above the neutral level of 0 but is the lowest reading since Covid lockdowns). Business conditions have not collapsed and remained quite resilient this cycle – the index has never slipped into negative territory since the pandemic.
However, the persistent downtrend is apparent, following the lead from lacklustre consumer spending in the past 2 years. Some forward-looking components of business conditions are still quite weak, for example , forward orders survey have remained negative for 13 months (meaning there are more firms that saw declines in new orders than those who saw increases).
Meanwhile, business confidence has shown signs of bottoming out lately, but November’s 8-point decline to -2 shows that overall sentiment is still fragile. It also confirms recent capex data from the ABS, which showed still positive but very minimal real growth in capital investment plans.
While we have seen some improvement in consumer sentiment in recent months (driven by rising disposable income & lower inflation rates), business surveys tend to lag slightly and today’s data show that economic growth is still quite weak in Australia. The employment survey, while still positive, also continued its downtrend to around its long-term average level. It points to lower jobs growth (or lower growth in hours worked) in the near term.
The NAB price surveys have been a good forward-looking guide to the overall inflation pressures in Australia and they continued to trend down throughout 2024. There was a small tickup in material purchase cost this month, but it has returned to the top end of the pre-covid level. Meanwhile labour and output price growth rates were largely unchanged. Overall, labour costs have been more sticky and while they have consistently trended down, the progress has been slower than the other two (input & output prices) surveys.
The NAB price surveys are also consistent with recent trends in PMI price surveys, commodity prices, shipping rates and other inputs into our Pipeline Pressure Indicator. They all point to the next leg down in inflation, and combined with still soft business sentiment, pose more downside risks for both investment growth and prices growth in Australia. While surveys won’t sway the RBA directly, we expect both employment & inflation to continue weakening as implied by them, which allows for a 1H25 start to the rate cutting cycle.
My Bui, Economist AMP | Superannuation & Investments
