Solid Business Conditions Unlikely To Last, Costs Still Elevated

The October NAB business survey signalled that currently the economy is doing well but that businesses don’t expect that to last. Business conditions remained strong despite falling 1 point to 22 but confidence fell 4 points to 0.2.

• Cost measures for October were mixed and while elevated they were below the Q3 average. Labour costs moderated to 2.7% from 3.1% last month, as the impact of the minimum wage hike faded. Final product prices were stable at 2% but purchase costs rose to 4.1% from 3.7%. Retail prices also rose to 3% from 2.3%, but that is still below the readings seen over the middle part of the year. These figures may be suggesting a peak in CPI inflation ahead but are still consistent with further rate hikes, as signalled by the RBA.
• While business conditions were the second highest recorded this year, after September, business confidence was the lowest and below the long-run average, suggesting that global uncertainty and tightening monetary policy are weighing on the demand outlook. Forward orders fell to 7.3 from 14, which is still a solid level.
• The trading conditions and employment components moderated but remain elevated while profitability rose slightly. The retail sector also saw a deterioration in conditions but they remain robust.