Strong retail sales drive business confidence

Business conditions in March saw the largest one-month jump since June 2020, according to the latest NAB Business Confidence Survey.

19 April 2022 

Trading conditions and profitability strengthened sharply, with trading conditions, profitability, and employment all up.

“A surge in business conditions headlined a really strong March survey,” said NAB group chief economist Alan Oster. 

“Businesses reported very strong trading conditions and a sharp rise in profitability, which indicates demand is continuing to hold up as the economy rebounds from Omicron and growth gathers momentum.”

“The retail sector drove much of the improvement in conditions, and there were also large gains in finance, business and property, and in recreation and personal services,” said Mr Oster. “That indicates household consumption continues to grow strongly with consumers undeterred by rising inflation, at least so far.”

In terms of the states, the strongest outcome was in Western Australia where the end of COVID-related border restrictions has helped to really boost conditions.

However, conditions were up in every state with a strong improvement in Victoria as well as South Australia and Tasmania.

Business confidence rose 3pts in March to +16 index points, continuing the steady rise since the onset of the Omicron outbreak in December. Forward orders continued to strengthen, up 3pts to +12 index points, while capacity utilisation also edged higher to 83.1%.

“Business confidence continued to improve in March, with little evidence of any adverse impact from events in Ukraine,” said Mr Oster. “The outlook also strengthened in terms of forward orders which points to ongoing economic growth over coming months.”

Cost and price growth measures in the survey rose to record levels in the month. Purchase cost growth reached 4.2% in quarterly terms, while labour cost growth hit 2.7%. Price growth also rose to 2.3%, with retail price growth rising to 3.7%.

“Costs are growing at record rates in the history of the survey,” said Mr Oster. “Purchase costs reached records with elevated oil prices adding to existing supply chain issues, and labour costs are also rising as businesses hire more workers in a very competitive labour market. These cost pressures are very broad-based across industries.”

“Importantly, it appears businesses have had little trouble passing on higher costs to consumers with prices – including retail prices – also rising at record rates,” he added. 

“Survey price measures differ from official measures in important ways, but we nonetheless expect very strong inflation in Q1 and likely Q2.

“Overall, the results depict a very strong rebound, led by strong consumer demand,” Mr Oster concluded.

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