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However, business conditions remained high and above average, despite edging down 1 point to +17 index points in February.
Trading conditions (+27 index points) and employment (+12) also remained steady, while profitability fell 4 points to +14.
“Business conditions remained at a very high level in the history of the survey in February,” said NAB chief economist Alan Oster.
“In broad terms, consumer-facing sectors like retail and personal services are reporting conditions clustered around +20 index points, while business-facing sectors are clustered around a level of +10, which is also fairly strong.”
However, business confidence plummeted 10 points to -4 index points, after lifting into positive territory in January.
NAB said wholesale, recreation and personal services, and finance, business, and property drove the fall.
“Confidence has been volatile over recent months,” said Mr Oster.
“Confidence fell late in 2022 as concerns about the global economic outlook increased. There was a respite in January as those concerns appeared to ease, but the decline in February suggests the outlook remains clouded.”
According to NAB, price and cost growth remained high in February.
Moreover, labour cost growth picked up to 2.8 per cent in quarterly terms, after a brief low of 2.1 per cent in December, while purchase costs growth remained at 3.1 per cent. Output price growth was also steady at 1.6 per cent in quarterly terms, with the retail component easing slightly to 1.9 per cent.
“There were mixed signals around prices in the February survey but overall, inflation pressures appear to have remained elevated through the beginning of the year,” said Mr Oster.
“Labour costs have picked back up from their December low while purchase costs also remain elevated despite easing in global pressures.”
Mr Oster added: “Overall, the survey confirms the ongoing resilience of the economy through the first months of 2023, though we continue to expect a more material slowdown in demand later in the year when the full effect of rate rises has passed through.”
Commenting on the survey, CreditorWatch chief economist Anneke Thompson said NAB’s survey suggests that businesses, particularly smaller businesses providing discretionary goods or services, will face slowing demand moving forward.
“Coming off a time of strong economic activity in the post-lockdown months of 2022, this is not altogether unexpected. However, as the slowing demand coincides with higher costs of goods and borrowing, it presents a particularly challenging set of circumstances for businesses,” said Ms Thompson.
This sentiment was echoed in CreditorWatch’s Business Risk Index, which found that business conditions have tightened due to high inflation and interest rates, in combination with falling demand.
“From inflation to interest rates, supply chain problems, labour shortages and falling consumer demand, Australian businesses are doing it tougher now than they have since the GFC back in 2009,” CreditorWatch chief executive Patrick Coghlan said.
“The businesses that have proper credit risk management processes in place and are monitoring the health of their ledgers will weather this storm much better than those that don’t.”
This article was originally published on HR Leader’s sister brand, Investor Daily.
