Business confidence falls as economic activity continues to soften: NAB
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The news: Business confidence fell back into negative territory in May as conditions continued to gradually soften, according to NAB's monthly business survey.
The numbers: Business conditions fell 1 index points to 6 index points overall, just below the long-run average. Employment rose 3 points to 5, while trading conditions and profitability both fell 3 points.
Forward orders rose 1 point to -6, but business confidence fell 4 points to -3 and capital expenditure lowered 4 points to 4.
A NAB business confidence reading above zero reflects improving business confidence and a reading below zero shows falling confidence.
Labour cost growth rose to 2.3% in quarterly equivalent terms, from 1.5% in April, and purchase cost growth also rose to 1.9%, from 1.3%. Product price growth lifted to 1.1% overall, from 0.8%. Retail price growth rose to 1.6%, from 1.0%, while recreation and personal services prices edged up slightly to 1.0% from 0.9%.
The context: NAB said the survey suggested subdued economic activity seen in the first quarter GDP data has continued into the second quarter.
Business conditions slipped just below average with trading conditions and profitability easing, though employment sub-improved to be back above average.
There were falls in conditions across most consumer-facing sectors including retail and recreation and personal services, while forward orders remained negative overall with deep declines in retail, wholesale and construction.
Elsewhere, capacity utilisation remains above average and cost and price growth measures rose in the month – including retail price growth, which rebounded back up to 1.6% in quarterly terms.
NAB noted that this suggests that while growth has slowed, the process of bringing supply and demand back into balance remains incomplete, reinforcing its expectation that inflation will continue to moderate only gradually from here.
What they said: NAB chief economist Alan Oster said: "We know from the Q1 GDP data that economic activity has been very subdued for much of the past year and the survey suggests this has continued into Q2, with conditions in consumer-facing sectors the ones that are bearing the brunt as households adjust their spending behaviour".
"Overall, the message here is a mixed one for the RBA," he said. "There are warning signs on the outlook for growth but at the same time reasons to be very wary about the inflation outlook, and we expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."
The source: NAB monthly business survey
