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Australian economy softening

Slowly but surely, the pace of activity across the Australian economy is softening. According to the latest business survey from the National Australia Bank (ASX:NAB), there are growing concerns about still rising costs, including labour, and weakening demand and confidence.

The NAB reported on Tuesday that its November business survey showed both the economic outlook and activity softened last month, with the easing evident across most states and industries.

Business confidence saw a second consecutive monthly fall and is now at its lowest level since 2012, outside of the pandemic period.

The NAB said business confidence fell 6 points to -9 index points, with falls in most industries, including a 16-point fall in retail. “In trend terms, only transport & utilities and construction remain in positive territory. Across all states, trend confidence was negative across the board.”

“Unsurprisingly, a further increase in rates saw confidence in the key consumer-facing sectors – retail and recreation & personal service – fall further into negative territory,” the NAB commented in the survey on Tuesday.

The NAB also reported that business conditions eased and are now at their lowest level since early 2022.

The bank said business conditions fell 4 points to +9 index points, remaining above the long-run average. “Trading conditions fell 6 points to +13 index points, and profitability was down 6 points (unrounded) to +6 index points, while employment remained at +8 index points.”

“Though they remain above average, they are now well off their recent peak in mid-2022 and, at a component level, are being supported by strong employment, with both trading and profitability close to their long-run averages.

“Forward orders softened, and taken together with confidence, suggest that businesses expect that conditions will weaken further. However, capacity utilisation remains high and continues to be reflected in elevated price pressures, with both input cost and output price inflation still elevated.

“Though conditions and confidence had been broadly stable through mid-2023, this month’s outcome suggests that growth in Q4 is unlikely to improve from the weak outcome in the Q3 national accounts, and while slower growth will eventually see an easing in inflation pressure, this will lag activity.”

NAB Chief Economist Alan Oster pointed to a problem for the wider economy that emerged in the survey.

“Price and cost growth accelerated in the month. Labour cost growth rose to 2.2% in quarterly equivalent terms, and purchase cost growth increased to 2.5%. Overall price growth rose to 1.2%, with retail price growth up to 1.9%, while recreation & personal services prices were running at 1.0%.

“Price pressures for both inputs and outputs remain elevated and actually nudged higher in the month. The hope is that with activity slowing, the easing in price pressures becomes more evident in early 2024,” Oster said.

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