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Business confidence plummets in December: NAB

The fall in business conditions was driven by the prospect of a ‘shadow lockdown’ through the summer. 

27 January 2022

The latest NAB Monthly Business Survey saw the aggregate index fall sharply to be well into negative territory – below the level seen during the Delta wave – signalling the depth of concern among firms about the trajectory of the outbreak. 

Business confidence fell 24 points in December, from +12 index points to -12. Confidence was down in every state, with the largest falls in NSW (down 31 points) and Victoria (down 25 points), followed by Tasmania (down 22 points) and Queensland (down 21 points). 

Confidence fell in all industries other than mining.

“The December survey showed a large hit to confidence from the Omicron outbreak with considerable falls right across the board,” said NAB chief economist Alan Oster. 

“The confidence index fell below the level recorded at the beginning of the Delta outbreak, showing just how concerned businesses are about the current virus wave.”

Business conditions fell 3 points to 8 index points. The fall in conditions was driven by the employment index, which fell 9 points to +2 index points. Profitability was up 1 point to +10 index points and trading conditions remained unchanged at +14 index points.

“Conditions eased but remained just above the long-run average in December,” said Mr Oster. 

“Conditions improved in a number of states including Victoria and Tasmania, but there was a large fall in Queensland that may relate to some of the challenges with state borders.

“Looking back, conditions have been surprisingly stable through the past few months with both lockdowns and reopening having only limited effects, despite big swings in confidence.

“That should provide some comfort that businesses are continuing to find ways to adapt through difficult circumstances.”

After improving over prior months to reach 83.2% in November, capacity utilisation fell back to 80.6% in December. Forward orders were down 9 points to +4 index points and capex also edged down 1 point to +5 index points.

The Omicron outbreak had a significant impact on leading indicators,” said Mr Oster. “That suggests that while the economy was still going OK in December, it was clearly slowing and the warning lights were coming on.”

Inflation measures remain elevated. Purchase cost growth jumped to 2.8% in quarterly terms in November, the highest level since 2008, and labour cost growth also rose to 1.9%. Final product prices were up to 1.5% and retail prices rose to 2% in quarterly terms.

“Purchase costs have lifted to near-record highs, and that pressure is flowing through to strength in output prices,” said Mr Oster. “With significant disruption to supply chains and labour markets, price pressures are to be expected and the key question will be how quickly (if at all) these pressures abate over coming months.

“Overall, the December survey results are consistent with an economy that’s starting to slow, with some similarities to the data when NSW and Victoria were first entering lockdown. That probably means conditions will fall in early 2022. However, we don’t expect the Omicron variant to derail the recovery longer-term.”

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