Australian firms turn pessimistic even as business remain brisk

11:20 pm Monday, December 12th, 2022

SYDNEY (Reuters) – Australian businesses turned in a pessimistic outlook for the first time this year in November as they worried about inflation and higher interest rates taking a toll on consumers in the period ahead, even sales and profitability remained robust.

Tuesday’s survey from National Australia Bank Ltd (NAB) showed its index of business conditions eased 2 points to +20 in November – still far above its long-run average.

But the measure of confidence fell 4 points to -4, hitting negative territory for the first time since December last year. That meant the gap between the two indicators was the widest for any month on record bar March 2020 – the early days of the COVID-19 pandemic.

“Overall, the survey suggests the economy powered through November with consumers still spending in the run-up to Christmas,” said NAB chief economist Alan Oster.

“However, firms have become increasingly pessimistic about the future as they look ahead to a slowing global economy and a period of weaker consumption as inflation and higher rates weigh on households.”

The NAB surveys have shown business activity beating all expectations for some months even as the Reserve Bank of Australia (RBA) has lifted interest rates by a total 300 basis points to a 10-year peak of 3.1%.

That tightening has taken a heavy toll on consumer sentiment, yet spending has held up well, helped by an unemployment rate near five-decade lows of 3.4%.

The NAB survey continued to show resilience in demand, with its measure of sales slipping 2 points to a still very strong reading of +28 and far above pre-pandemic levels.

Firms were running flat out with capacity utilisation just off a record high at 85.2%.

Profitability edged 1 point lower to +20, while the employment index also dipped 1 point to +13, still high from a historical perspective.

Labour costs picked up a little in the month, and both producer costs and retail prices accelerated.

NAB’s Oster said sentiment was negative across a wide range of sectors, from retail to utilities.

“Whether, and how soon these fears are realised remains to be seen however, and we will continue to monitor spending trends closely over coming months,” said Oster.

(Reporting by Stella Qiu; Editing by Kenneth Maxwell)