Business confidence dipped as conditions eased, hovering just below their long-term average after two years of above-average performance.
Forward orders remained soft, with retail conditions staying low and signs of easing in the services sector. Despite this, capacity utilization stayed high, with elevated rates of cost growth reported for labor and other inputs. Price growth increased notably in retail and across product prices, suggesting firms still have some capacity to pass cost pressures to consumers, although the extent of this remains a focus for 2024. NAB’s Quarterly Business Survey indicates growing concern over pressure on margins and the slowdown in activity.
Anneke Thompson, Chief Economist CreditorWatch said: “Consumer confidence survey data released by Westpac today showed an unexpected increase in confidence among consumers in February. While sentiment is still in deeply pessimistic territory, this month’s survey recorded the biggest lift in sentiment since April 2023. However, Westpac did caution that the increase in sentiment seemed to be driven by the positive inflation news, but as the survey continued and the RBA board meeting minutes were released, responses were more restrained. That being said, this data gives us some indication that consumers believe the worst is behind us, although it is unlikely we will see any real improvement in discretionary consumer spending until a cut to the cash rate is firmly in sight.
“Business sentiment and conditions continue to converge, with conditions now almost catching up to where sentiment lies. Business conditions are now a touch below their long run average, while confidence improved slightly, it still remains below average. Conditions deteriorated the most in recreation and personal services and finance, business and property. Trend conditions in the retail sector remain the worst of all industries.
“Overall, this data tells us that businesses are expecting weaker conditions over the next six months at least, and have been preparing for this for some time. Consumers seem to be watching data trends closely, but maybe reacting a little too quickly to good economic news. Regardless, given the low levels of savings and very high housing costs that both renters and mortgage holders are paying, it won’t be until we see real relief in interest rates and rental inflation that discretionary spending will recover.”
According to NAB Chief Economist Alan Oster, business conditions decreased slightly in January, with trading and profitability indexes falling below average, while employment remained above average. Services sectors experienced a pull-back in conditions, and retail conditions remained weak.
Business confidence saw a marginal increase but remained low overall, reflecting ongoing economic pressures. Manufacturing and construction sectors showed slight improvement, but overall confidence remains weak across industries.
Forward orders saw a slight uptick but remained soft, while capacity utilization rebounded and remained above its long-term average. Input cost growth remained stable, with labor costs unchanged and purchase costs slightly increasing. Output prices saw a modest rebound, especially in retail.
Despite the easing in activity measures, price pressures remain solid, although they are expected to ease further in early 2024. NAB’s survey aligns with other data, indicating high capacity utilization and easing price pressures, with hopes for a significant decrease in the near future.
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