Business confidence fell sharply in November, down eight points to -3 index points, according to NAB’s latest business survey.
This decline reversed the gains made in October, which had indicated resilient economic activity and a trend easing in price and cost pressures.
Since then, business conditions have softened, with declines across all industries except mining and construction.
“Confidence fell sharply in November and is now back below average” said NAB’s chief economist, Alan Oster.
“While we were optimistic last month, it appears the trend of well below-average confidence remains intact.”
According to NAB, in trend terms, conditions remained weakest in retail and manufacturing. A state-by-state overview also shows that conditions were found to be weakest in South Australia and Victoria.
“Conditions in the goods sector remain weak,” Oster said. “Interestingly, conditions in the services sectors – recreation and personal services and finance, business and property services continue to track at a higher rate.”
But the bank still noted that all three subcomponents of business conditions – trading, profitability and employment – are now at or below average.
Forward orders also declined further, dropping two points to -5, led by weakness in mining and retail. These also continue to track below the long-run average, as they have for most of the year.
“The forward-looking indicators in the survey remain weak,” Oster said.
“Capacity utilisation continues to gradually trend lower but was unchanged and above average in November.
“Capacity utilisation remains an important dynamic with the growth in activity continuing to look weak but the level of activity remaining high.”
Meanwhile, input cost pressures were broadly unchanged over November. Labour cost growth held steady at 1.4 per cent in quarterly equivalent terms, while purchase cost growth edged up 0.2 percentage points to 1.1 per cent.
Output price growth was also unchanged at 0.6 per cent in quarterly equivalent terms, while retail prices growth fell back to 0.6 per cent, and recreation and personal services output price growth edged down to 0.7 per cent.
Last month, NAB’s head of Australian economics, Gareth Spence, said that October’s positive reading was an encouraging sign alongside a “tentative improvement” in forward order.
“Confidence spiked in the month after an extended period of below average reads,” Spence said.
“We continue to watch the survey closely – not just for the forward looking and activity indicators, but also capacity utilisation which will be key in the evolution in price pressures for the economy.”
And while October’s figures suggest an ongoing gradual easing in inflationary pressure, Spence warned that there is still a way to go in moderating inflation when looking at consumer-facing components.
