Business Maverick

Business Maverick

Australian business conditions hold up as consumer mood dims

Australian business conditions hold up as consumer mood dims
Pedestrians and shoppers make their way through the Murray Street Mall in the central business district in Perth, Australia, on Saturday, July 22, 2023. (Photo: Lisa Maree Williams/Bloomberg)

Business conditions, which measure sales, employment and profitability, eased a tad to 10 points in July while holding above the average since the start of the year, a National Australia Bank Ltd. survey showed on Tuesday. Confidence advanced to 2 points, implying optimists outnumber pessimists.

The data challenge “expectations that the economy would continue to cool as 2023 wears on”, NAB said. “Labor cost growth rose sharply” as did purchase costs, reflecting strong energy prices and highlighting considerable upside pressures to third-quarter inflation, it said.

Separate figures from Westpac Banking Corp. released an hour earlier, showed consumer sentiment slipped 0.4% to 81 points, meaning pessimists heavily outnumber optimists, with a reading of 100 the dividing line. The index has held in a 78-86 range over the past year.

The surveys show an ongoing divergence between household and corporate sentiment, suggesting businesses are better able to cope with surging borrowing costs. The Reserve Bank has raised rates by 4 percentage points since May last year as it battles to contain inflation that’s still running at 6%.

NAB’s report showed leading indicators strengthened slightly with forward orders edging up and capacity utilisation climbing to 84.5%. The results came even as labour cost growth rose 3.7% in quarterly equivalent terms, up from 2.3% in the three months through June. Final price growth, which includes purchase costs, doubled to 2%, from 1% in the second quarter. 

Households are struggling amid “continued pressures on family finances and concerns about the interest rate and economic outlook,” Westpac senior economist Matthew Hassan said.

The consumer survey was conducted from 31 July to 4 August, spanning the RBA’s meeting on 1 August when it left the cash rate unchanged at 4.1% for a second consecutive month. The results “pointed to little or no impact from the RBA’s decision to pause,” Hassan said.

Assessments of “family finances compared to a year ago” rose 3.4% to 64.3, remaining at an “extremely weak level overall”, Hassan said. The “family finances next 12 months” sub-index edged 0.2% higher to 89.9.

A gauge of the outlook for household spending, “the time to buy a major household item” sub-index inched up 0.3%, again holding at historically low levels at 79 points, the report showed.

Hassan expects the RBA will now be on an extended pause, holding the cash rate unchanged at 4.1%. 

“Consumers may not be convinced but we have very likely reached the peak in the interest rate tightening cycle,” he said. DM

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