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Despite Still Favorable Business Conditions, Confidence Is Ebbing

Business/EconomyDespite Still Favorable Business Conditions, Confidence Is Ebbing

Companies are still largely immune to economic hardships, but when the full impact of increasing interest rates becomes apparent, things are predicted to get worse.
Business conditions dropped one point to 17 index points in a monthly survey conducted by NAB, which is still “extremely good” when compared to historical averages.

Nevertheless, in the February study, confidence in the Australian business sector dropped by 10 points to minus-4 points, dropping below zero.

In January, the confidence index increased into a favorable range.

Circumstances remained favorable across all states and industries, with employment remaining stable at 12 index points and trading conditions at 27, although profitability fell four points to 14.

Forward orders decreased three points to three index points, with leading signs easing marginally. Even if it decreased, capacity utilisation—which now stands at 85.2%—remains high.

Despite easing global pressures, purchase-cost growth remained high at 3.1%, sending conflicting signals about prices, according to NAB Chief Economist Alan Oster. Labor costs have increased to 2.8% in quarterly terms from December lows.

According to Mr. Oster, price rise appears to be slowing in the retail sector as supply problems on a worldwide scale are resolved.

The RBA continues to place a high priority on lowering consumer service prices, but our poll finds no evidence of this.

Although we continue to anticipate a more significant slowdown in demand later in the year when the full impact of rate increases has gone through, he added the survey indicated the economy’s enduring resilience.

The Reserve Bank identified the NAB Business Report as one of four important data sources of interest last week in advance of the announcement on the April cash rate.

In March, the central bank raised rates once more, but in the communications that went along with it, it used softer language and hinted that the cycle of tightening would soon be coming to an end.

The February business survey, according to JP Morgan analyst Jack Stinson, did not provide a convincing case for a pause in April.

In reference to the demise of numerous regional banks in the United States, he remarked, “Obviously any signal is muted by persistent financial stability concerns.

Over the past several days, three regional American lenders have failed or shut down, including the Silicon Valley Bank in California, which was mostly used by the tech industry.
According to Mr. Stinson, the Thursday labor force data may have an impact on the decision to set the cash rate for April.

Notwithstanding the fact that recent events have tipped risks in favor of a halt, “we stick with a final 25bp raise in April,” he said.

Consumer confidence has also been affected by rising interest rates.

The monthly index from Westpac and the Melbourne Institute maintained steady at 78.5 in March, close to record lows.

Bill Evans, the head economist at Westpac, said sub-80 readings were uncommon, particularly two consecutive ones.

Moreover, just one month of feeling at these levels was experienced during the COVID shock and the global financial crisis, he added.

The weekly index of consumer sentiment from ANZ and Roy Morgan fell by 2.9 points to 77 last week, much below the historical monthly average of 111.6 over the past three decades.
Since April 2020, the weekly gauge of consumer mood has never been lower.

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