Three takeaways from NAB’s March 2022 business survey

Highlights

• Business confidence and conditions bounced back to pre-Delta levels in March 2022.
• Business conditions were the sharpest to rise in retail, followed by the finance, business and property sector.
• Confidence rose sharply across the transport sector, showing an overall rise across all states.

Business activity seems to be recovering back to life as lockdown related uncertainty has somewhat receded to the background in March. Despite soaring costs, businesses have managed to operate better than before and can be seen moving to normalcy. The latest data by the National Australia Bank (NAB) gives a similar purview of the economy.

NAB released its monthly business survey for March 2022 on April 12. The survey resonated with the observed improvement in the business environment. Overall, the survey showed that business confidence and business conditions both rose in March across Australia. The parameters are now back to their pre-Delta levels but are significantly above the pre-Covid level.

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Businesses have passed the rising costs to consumers in the form of higher prices of goods and services. On that note, here are some key takeaways from the March business survey by NAB.

1.    Business confidence and conditions improve

Business conditions rose 9 pts to +18 index points, showcasing the largest one-month jump since June 2020. The spike in business conditions was driven by strengthening trading conditions and profitability, with employment also rising in the backdrop. 

Trading conditions were up 13 pts to +24 index points, and profitability was up 8 pts to +13 index points. These two factors, and employment form the three components determining trading conditions.

Among all industries, sharp rises in the retail sector, finance, business and property sector, as well as recreation and personal services sector contributed to the rise in business conditions. Conditions in retail rose 23 pts, finance, business and property rose 12 pts and recreational and personal services rose 10 pts. Many other industries saw no change in business conditions. However, mining, wholesale, finance, business and property and retail continued to remain the strongest.

2.    Confidence rising sharply in transport

Business confidence rose 3 pts in March to +16 index points, continuing the same rising streak seen since December. Meanwhile, confidence in transport, construction, recreation, and personal services rose dramatically in March.

Confidence was up 16 pts in transport, 15 pts in construction, 11 pts in recreation and personal services. In trend terms, all industries saw an uptick in business confidence. Additionally, confidence rose across all states, with Tasmania leading the rise at 21 pts. Confidence in South Australia rose by 14 pts, and in Western Australia confidence was higher by 13 pts.

Meanwhile, Western Australia also saw booming business conditions as the border fully reopened. Conditions were up 24 pts in Western Australia, followed by great improvement in Victoria, where conditions rose 12 pts. South Australia and Tasmania also saw a rise in conditions of 7pts each.

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3.    Cost and price growth at record levels

 The rising cost of living pressures are becoming increasingly visible, with growth measures reaching record levels in March. Purchase growth cost reached 4.2% in quarterly terms, while labour cost growth reached 2.7%, well above the previous peak of 2% seen in late 2006. Meanwhile, price growth rose to 2.3%, with a rise in retail price to 3.7%.

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Industries reliant on materials inputs saw rising costs, with purchase costs rising 5% in wholesale, 4.8% in construction and 4.7% in manufacturing. Purchase costs in retail also grew 3.5% due to an increase in upstream costs. Each industry has now surpassed its pre-2022 cost levels, except manufacturing.

Another surprising bit of information is the tight relationship seen between costs and prices. The correlation between purchase cost growth and price growth has also only strengthened with time, becoming much more pronounced than the relationship between labour costs and prices. However, the price levels in the survey do not correspond to rising inflation statistics reported nationally.

Additionally, forward orders remained strong, rising by 3 pts during March, while capacity utilization also inched higher to 83.1%.

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