NAB’s latest Monthly Business Survey has reported an 8-pt decline in business conditions in December, reflecting a dip in sentiment across all industries.
Conditions fell for the third consecutive month, slipping to 12 index points — albeit double the long-run average of 6 index points.
The monthly decline was the result of weakening across subcomponents, with trading conditions down 10 pts to +18 index points, profitability down 8 pts to +12 index points, and employment down 5 pts to +8 index points.
According to NAB, indicators suggest conditions could deteriorate further over the coming months, with forward orders down 2 pts to +3 index points.
However, despite weakness in business conditions, confidence was up 3 pts to -1 index points but remains well below the long-run average.
Notably, price and cost pressures eased, with purchase costs growth slowing to 2.5 per cent in quarterly terms — down from 3.9 per cent.
Labour costs’ growth also slowed to 2.0 per cent over the same period, down from 2.8 per cent.
Meanwhile, output price growth eased from 2 per cent to 1.5 per cent, while retail components slowed to 2.3 per cent.
“…The main message from the December monthly survey is that the growth momentum has slowed significantly in late 2022, while price and purchase cost pressures have probably peaked,” NAB chief economist Alan Oster said.
However, Mr Oster said cost pressures “still remain elevated”, and would need to slow further to achieve the Reserve Bank of Australia’s (RBA) inflation target range.
“That said, we know the full impact of rates is yet to fully flow through, so the survey should give us an indication of the accelerating impact from rates over coming months,” Mr Oster said.
Reflecting on the NAB data, AMP Capital chief economist, Dr Shane Oliver, said the results further support his view that the RBA has “done enough” to bring inflation back to target.
Mr Oliver said he is expecting the RBA to pause its monetary policy tightening cycle in February to “avoid the risk of unnecessarily tipping the economy into recession”.
“But we concede that the strength of retail sales as indicated by the ABS for November and from corporate reports suggests a still high risk of another 0.25 per cent hike in February.
“Either way, we see the cash rate as being at or close to the top.”
