Business research

Monthly business survey: February 2022

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Overview

Trading conditions and confidence strengthened in February as the wave of the Omicron virus subsided and late-2021 momentum was regained. After falling in January, the conditions index rebounded to stand above its long-term average. The rebound came on the back of a strong rise in the employment index – reflecting fewer health-related job disruptions and strong labor demand – as well as improving labor market conditions. trade and profitability. Almost every state and industry on the continent shared in the recovery, but WA saw conditions plummet as the planned reopening of borders was postponed. There has also been a general improvement in confidence, again with the exception of WA and Tasmania, and predictors have increased. Businesses continued to post strong cost growth, although purchasing cost growth slowed slightly from record highs in January. Finished goods price inflation also remained elevated, with retail prices strengthening to over 2% in quarterly terms, suggesting cost pressures are increasingly being passed on to consumers. Nevertheless, prices continue to be driven more by temporary purchasing cost factors than by more sustained pressure on wages and labor costs. How these forces play out over the next few months remains a key uncertainty, with wage growth likely to strengthen as purchasing costs decline.

Trading conditions increased by 7 points in February, to +9 index points, to return to above their long-term average. The result was driven by a sharp rise in the employment index, which rose by 9 points to +8 index points. Trading conditions (up 2 points to +10) and profitability (up 3 points to +5) also increased.

“After Omicron caused significant disruption to businesses in January, the latest survey results show things are getting back on track,” said Alan Oster, chief economist at NAB Group. “The employment index has improved significantly as the labor market strengthens, after the virus kept many people out of work due to illness or isolation requirements at the height of the pandemic. recent wave.”

“Trading conditions rebounded strongly in Victoria and NSW, although WA and Tasmania saw conditions slip,” Mr Oster said. “In terms of industries, conditions have really improved across the board with big gains in retail and transportation and utilities. Leisure and personal services have also improved, although they continue to be behind.

Business confidence rose 8 points in February to +13 index points, building on a sharp rise in January after a sharp drop in December. Confidence rose in all industries and most states, but fell in WA and Tasmania.

“Confidence continued to improve in February as the threat to the economy from the Omicron outbreak receded,” Oster said. “That said, the month’s survey was largely completed before the invasion of Ukraine, so we’ll have to wait and see the extent of the conflict’s impact on confidence.”

Futures orders improved by 4 points to +9 index points, and capital expenditure also strengthened by 5 points to +8 index points. Capacity utilization increased slightly from 81.7% to 82.5%, largely due to retail trade.

Growth in purchasing costs was 2.7% in quarterly terms. Labor cost growth and finished product price growth were stable but remain high. Retail price inflation strengthened to 2.1% in quarterly terms, returning to highs seen at the end of 2021.

“Procurement cost growth slowed somewhat in February, but remains at historically high levels, reflecting current supply chain challenges – and these issues could be further exacerbated by events in Ukraine and the sanctions against Russia,” Oster said.

“Retail price growth strengthened in February, now above 2% in quarterly terms, suggesting businesses are passing on higher costs to consumers,” Oster said. “Although the survey price measures differ from the official measures in important ways, the results suggest that another quarter of strong inflation is likely when the March quarter CPI is released next month,” Mr. Oster.

“Overall, the February survey shows the economy quickly getting back on track as the Omicron wave recedes,” Oster said. “The outlook is quite strong, with supply disruptions and cost pressures now the main challenge facing businesses.”

For more information, please see the NAB Monthly Business Survey (February 2022)