National Australia Bank’s May survey

By Glenn Dyer | More Articles by Glenn Dyer

The recent federal budget had no positive impact on business conditions and confidence, according to the May monthly survey from the National Australia Bank. In fact, business confidence returned to a negative reading in May, while conditions continued to soften, confirming the continuation of the weak first-quarter GDP report. Business conditions fell 1 point to +6 index points overall, while business confidence fell 4 points (unrounded) to -3 index points.

But while the survey showed a steadying in employment, price pressures continue to ease slowly, and growth is moderating, adding to the uncertainty for the Reserve Bank ahead of its meeting next week. NAB chief economist Alan Oster said in the survey release, "Overall, the message here is a mixed one for the RBA. There are warning signs on the outlook for growth but at the same time reasons to be very wary about the inflation outlook, and we expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."

The NAB survey revealed that business conditions slipped just below average, with trading conditions and profitability easing, "though the employment sub-component improved somewhat to be back above average."

"There were falls in conditions across most consumer-facing sectors including retail and recreation & personal services, while forward orders remained negative overall with deep negatives in retail, wholesale, and construction.

"Nonetheless, capacity utilization remains above average, and cost and price growth measures rose in the month – including retail price growth, which rebounded back up to 1.6% in quarterly terms.

Mr. Oster said the survey showed that labor cost growth rose to 2.3% in quarterly equivalent terms (from 1.5% in April) and purchase cost growth also rose to 1.9% (from 1.3%).

"Product price growth lifted to 1.1% overall (from 0.8%). Retail price growth rose to 1.6% (from 1.0%), while recreation & personal services prices edged up slightly to 1.0% (from 0.9%).”

“Cost and price growth measures appear to have re-accelerated in May,” said Mr. Oster. “We have been wary for some time that the path of inflation from here is likely to be gradual and uneven, and the survey results really reinforce this message.”

"This suggests that, while growth has slowed, the process of bringing supply and demand back into balance remains incomplete, reinforcing our expectation that inflation will continue to moderate only gradually from here."

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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