The Australian economy continues to boom as we head towards the Federal election on Saturday week, judging by the latest monthly business survey from the National Australia Bank.
Inflation remains a headache, but not a concern like we are seeing in the US, Europe and the UK and in fact the NAB said there appeared to be a slight easing in April after the March quarter’s high reading fo headline inflation and core consumer inflation.
Demand remains solid and most states are seeing solid levels of activity with the exception of Tasmania where there has been a softening.
The survey showed business conditions continued to strengthen in April, while confidence eased but remained above its long-run average.
The continued improvement in conditions came despite a sell-off on stockmarkets and sharp falls in the prices of some key commodities as the spread of Covid in China and the inept attempts to control and eliminate the virus threatens to crash the most important economy for Australia.
But while cost pressures continue to intensify, the NAB said demand appears to be solid with capacity utilisation levels rising, reflecting a solid pace of orders.
The NAB survey showed trading conditions and profitability continued to strengthen last month, while employment was steady. The gains came on the back of a long-awaited recovery in the recreation & personal services sector, where conditions rose 20pts.
“Both confidence and conditions now look fairly strong across most industries, with the exception of transport & utilities and construction where cost pressures have been most acute,” the NAB said.
Business conditions rose 5pts to +20 index points, building on those gains in March. Trading conditions and profits again drove the result, with trading conditions up 4pts to +27 index points and profitability up 9pts to +22 index points. Employment was steady at +10 index points.
Business confidence eased 6pts to +10 index points, still above its long-run average after several months of steady increases. Forward orders eased slightly, while capacity utilisation rose to 83.9%.
So far as the states are concerned, the NAB said Queensland saw conditions strengthen considerably while conditions in Victoria eased, but both conditions and confidence are fairly strong across the states with only Tasmania showing softer confidence levels.
Cost pressures continued to build, with labour cost growth up to 3.0% and purchase cost growth reaching 4.6% (in quarterly terms) – both at new highs. However, output price inflation eased with final product prices rising 1.7% and retail prices up 2.1%.
“Still, these rates of price growth remain high in the history of the survey and the strength in underlying costs suggests inflationary pressure is likely to continue building over coming months. Overall, the survey highlights the ongoing strength in activity and the broad-based nature of the recovery, against a backdrop of cost pressures continuing to pose a significant challenge for businesses,” the NAB commented.
“As expected, the Q1 CPI result showed inflation has risen sharply and the April survey results show little let-up in the underlying cost pressures that are driving prices higher,” according to the NAB’s Chief Economist, Alan Oster.
“Price growth eased somewhat in the April survey after hitting record rates in March, but remained high when looking at the history of the survey, supporting our expectation that inflation will remain elevated in Q2 and likely Q3.”
“Still, the strong business conditions including trading conditions and profitability show that the economy is faring quite well and so far, demand is holding up in the face of higher inflation,” said Mr Oster.