Business research

Monthly business survey: January 2022

Our series of podcasts to accompany the NAB Monthly Business Survey continues, giving you a 10-minute summary of key survey developments this month. Listen now.

If you’re listening on a mobile device, click listen in the browser.

Overview

Business conditions deteriorated in January as the Omicron variant caused COVID-19 cases to reach unprecedented levels, triggering consumer caution and staffing shortages. Profitability, business conditions and employment have all plummeted, with the impact being felt in nearly every state and every industry. Recreation and personal services continue to be the hardest hit, but retail, transportation and construction have all suffered significant negative impacts. Nonetheless, business confidence rebounded into positive territory after the initial outbreak caused a sharp drop in confidence in December. The rebound in confidence signals that, despite the disruption, companies were optimistic about the short-lived outbreak and, consistent with that, futures orders held steady. There was also an increase in capacity utilization, driven by manufacturing, transportation and wholesale trade. Cost pressures remained high, with purchasing cost growth hitting a record 3.4% in quarterly terms. The strong growth in the wage bill continued while on the production side, the rise in prices for finished goods remained high, even if the rise in retail prices moderated somewhat. With the number of cases appearing to have peaked in late January, some staffing constraints are expected to ease and conditions should improve in the coming months, but uncertainty remains over how quickly the broader supply chain issues will supply will be resolved.

Trading conditions fell 5 points in January, to +3 index points, below their long-term average. All three components of conditions deteriorated, with sharp declines in profitability (down 8 points to +2 index points) and business conditions (down 7 points to +7). Employment also fell (-3 points to -1).

“The Omicron outbreak has caused significant disruption, and this is reflected in deteriorating trading conditions to start the year,” said Alan Oster, chief economist at NAB Group. “The leisure and personal services sector remains the hardest hit, and several other sectors have suffered significant impacts.”

“Still, conditions have remained in positive territory and are nowhere near as bad as we saw during the imposed shutdowns in 2020 and 2021,” Oster said. “While consumers have been cautious, vaccines have provided protection, and companies have also learned to adapt the way they operate through past virus waves.”

Business confidence rebounded 15 points in January to +3 index points after falling to -12 in December. Confidence increased in all industries outside of mining and in all states. Futures orders remained stable at +4 index points, while capital expenditure fell slightly by 3 points to +3. Capacity utilization increased from 80.7% to 81.6%.

“Confidence fell sharply in December when the Omicron variant began to spread, but rebounded in January, reflecting that the outbreak appears to have peaked quickly and lockdowns have been averted,” Oster said. “This positive outlook is underpinned by futures orders, which remained flat through January despite the disruptions.”

“Capacity utilization also increased during the month, driven by manufacturing, transportation and wholesale,” Oster said.

Inflationary pressures persisted. In quarterly terms, purchasing cost growth hit a record 3.4% in January, while labor cost growth remained elevated at 1.9%. Prices for finished goods also remained high, but the rise in retail prices moderated somewhat, falling from 2.0% to 1.3% in quarterly terms.

“Growth in purchasing costs continued to increase in January, reaching record highs in quarterly terms, reflecting ongoing supply chain challenges,” Oster said. “Retail price growth has slowed somewhat, but it is nonetheless clear that the economy is facing a period of high inflation as supply chain issues remain unresolved.”

“Overall, the January survey shows significant disruption to business activity from the spread of the Omicron variant, although business impacts were less severe than in previous outbreaks,” Ms. .Oster. “However, we continue to expect a strong recovery as the number of cases declines.”

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